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U.K. retail sales posted a strong start to the year in January, significantly outperforming expectations and building on December’s gains, suggesting that consumers entered the new year with a greater degree of confidence than anticipated.
According to data released Friday by the Office for National Statistics, retail sales volumes rose 1.8% month on month in January, sharply exceeding December’s 0.4% increase. On an annual basis, sales climbed 4.5%, accelerating from a revised 1.9% rise in December, which was previously reported as 2.5%.
The figures comfortably beat market forecasts. Economists had expected retail sales—largely reflecting goods purchases and not adjusted for inflation—to rise just 0.2% on the month and 2.8% year on year.
The strength follows an unexpected surge in retail activity at the end of last year, driven in part by robust online sales. That pickup came after Chancellor Rachel Reeves’ Autumn Budget, which reduced uncertainty over the scale of tax increases required to fund higher public spending, helping to stabilize consumer sentiment.
Despite the encouraging data, the outlook for household spending remains cautious. Consumer expenditure growth is still expected to be subdued through 2026, as elevated inflation and a tight labor market continue to weigh on real incomes.
From a policy perspective, the data arrive as the Bank of England navigates a delicate balance. The central bank held its benchmark interest rate at 3.75% earlier this month, but the decision was narrowly split, with a 5–4 vote on the Monetary Policy Committee. Combined with easing inflation and weak overall economic growth, markets increasingly see scope for another interest rate cut as early as March.
