UK January retail sales surge, up 4.5% year-on-year

Investing.com - UK retail sales surged significantly in January, surpassing the strong increase seen last month, indicating that consumers still maintain a certain level of confidence at the start of the new year.

According to data released earlier on Friday by the Office for National Statistics, retail sales for the previous month increased by 1.8% month-on-month, compared to a 0.4% rise in December.

Year-over-year, sales increased by 4.5%, up from a 1.9% growth in the previous month, with the figure revised down from the previously reported 2.5% annual growth rate.

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Economists previously forecasted that retail sales, mainly reflecting goods sales and unadjusted for inflation, would increase by 0.2% month-on-month and 2.8% year-over-year.

The sharp increase in retail sales at the end of last year was unexpected, primarily driven by strong online performance, occurring after Chancellor Rachel Reeves announced the autumn budget, ending uncertainty over the tax hikes needed to fund higher public spending.

Nevertheless, despite signs of consumer resilience, weak consumer spending growth is still expected in 2026, with inflation and a tense labor market continuing to pose challenges.

The Bank of England earlier this month kept the base interest rate at 3.75%, but the Monetary Policy Committee made this decision by a narrow 5-4 margin. Coupled with cooling inflation and sluggish economic growth, this suggests a possible rate cut again in March.

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