Forget Blue Monday, 1.7% growth in UK retail sales was another positive surprise from January

Seasonally adjusted sales volumes increased after four months of consecutive falls. Food volumes also defied four months of seasonally-adjusted falls with a strong uptick of 5.2% compared to December.

Volumes and seasonal adjustment can make things confusing, but to put this in the simplest terms I can: statisticians at the ONS think that the underlying trends in food sales mean January was the strongest month for the amount of products sold by food stores that we have seen since June 2023. Not bad, if not spectacular.

Sales figures (in terms of money changing hands) were even stronger – 2.6% up versus January 2024 for all retail sales after petrol is excluded, and 2.9% up for groceries. The increase in both volumes and values for food sales suggests not all of the positive sales trajectory was due to inflation.

Add to all this, the great numbers when it came to footfall. It was cold, but it was sunny (the fifth sunniest January on record). UK footfall was up by 6.6% compared to January last year, according to the BRC-Sensormatic figures.

A rare win for bricks-and-mortar. As PwC UK head of retail Jacqueline Windsor points out: “The penetration of online retailers fell from 26.9% in December to 25.7% in January, making this the weakest month for online retailers since the disruption caused by postal strikes in December 2022.”

Elsewhere, the Bank of England cut interest rates to 4.5% in early February. That, combined with strong wage growth (2.5% in real terms, 3.4% when housing costs are not included in the figures), could help shift the dial from saving into spending and ultimately make consumers feel more confident.

There are some tentative signs of that already. Consumer confidence, as measured by NiQ GfK, surprised economists by ticking upwards this month. It is still -20, but consumers are seemingly feeling better about their personal finances.

“The biggest improvement is in how consumers see their personal finances for the coming year, with an increase of four points that takes this measure out of negative territory”.

Neil Bellamy, NiQ Gfk consumer insights director

To cap it all off, we also found out that the economy unexpectedly grew in the last three months of 2024. This will be the ultimate arbiter for the UK government given their stated mission for growth. If this anaemic level continues (0.1% was the rate for the final quarter of last year), it will not do much to convince retailers that the pain they are experiencing is worth it, but it is another indicator pointing in the right direction.

It is still hard to shake off the calm-before-the-storm feeling of all this. One ominous datapoint we saw this week was the faster-than-expected rise in inflation. This was partially driven by food prices, suggesting retailers are starting to frontload the cost increases they are expecting in April. Wage growth getting too strong could make this even more of a challenge. 

The retail sales figures were also not so great for fashion, which was the worst-performing category – seasonally-adjusted sales in January fell by 2.4% from last year. Household goods sales also fell but by a more modest 0.5%.

There is little sense that this changes the dial when it comes to the challenges faced by the sector this year. As BRC director of insight Kris Hamer says: “The boost to sales barely touches the sides of the £7bn in new costs from the Budget and packaging levy facing the industry this year.”

Still, you take your wins where you can. January was generally good for the sector. Here is hoping that February and March are too.

What commentators are saying:

Jacqueline Windsor, head of retail at PwC UK:

“While January has proven to be a better-than-expected start to the new year, retailers will be hoping that this momentum continues, despite weakening consumer sentiment. The wider economic climate will become increasingly challenging for the retail sector, as input cost inflation rebounds and higher labour costs and business rates increases hit in April.”

Silvia Rindone, EY UK&I retail lead:

“While macro trends such as growing consumer income in real terms and lower interest rates are positive news, the benefits are not being felt evenly across the retail landscape. Overall growth in the retail sector remains sluggish, masking a mix of both strong and poor performers within every retail sub-sector. Performance is highly variable and largely dependent on how well retailers have optimised their customer offerings – both digitally and physically over recent years. Those who have not invested in their propositions are now struggling to find the space to invest further in increasingly challenging conditions.”

Kris Hamer, director of insight at the BRC:

“This boost to sales barely touches the sides of the £7bn in new costs from the Budget and packaging levy facing the industry this year. The industry is already paying more than its fair share of tax and with retailers already doing all they can to absorb existing costs, retailers will be left with little choice but to increase prices or reduce investment in jobs and shops, or both. To mitigate this, the government must ensure that its proposed business rates reform does not result in any shop paying higher rates than they already do.”