UK Retail Sales Fall Less Than Expected, But Rising Energy Costs Cloud Outlook

British retail sales volumes declined in February, highlighting growing pressure on consumer spending as households brace for the economic impact of rising energy prices linked to geopolitical tensions in the Middle East.

According to data released on Friday by the Office for National Statistics, retail sales volumes fell by 0.4% month-on-month. While the decline reflects weakening consumer activity, it was less severe than expectations from economists surveyed by Reuters, who had forecast a 0.7% drop.

Despite the relatively modest contraction, concerns are mounting over the outlook for March and beyond, as higher oil prices—driven by the Iran conflict—begin to erode household disposable income. Energy costs have risen sharply in recent weeks, adding renewed inflationary pressure and weighing on consumer confidence.

Sentiment indicators reinforce this cautious outlook. The latest survey from GfK showed that British consumer confidence has fallen to its lowest level since April 2025, a period marked by a surge in utility bills that significantly strained household finances.

The rise in oil prices, estimated at around 50% since the escalation of the conflict, has contributed to the deterioration in sentiment, although the extent of the decline varies across different surveys.

Retailers have so far reported limited immediate impact on sales, but remain cautious about the months ahead. Companies such as John Lewis, Kingfisher plc, and Next plc indicated that trading conditions have not yet been significantly affected by the conflict.

However, Next warned that a prolonged disruption—particularly if the conflict extends beyond three months—could force the company to raise prices in order to offset higher operating costs.

Overall, while February’s retail data proved more resilient than expected, the combination of rising energy prices, weakening consumer sentiment, and geopolitical uncertainty suggests that pressure on UK household spending is likely to intensify in the near term.