UK retail sales maintain momentum, but recovery still fragile

Martin Beck, Chief Economist | Economic Consulting and Analysis

Retail sales volumes rose again in September, marking a fourth straight month of growth. Sales increased by 0.5%, little changed from August’s upwardly revised 0.6%, while underlying three-month-on-three-month growth climbed to 0.9%, the first positive reading since June (Figure 1). That means retail spending made a positive contribution to GDP in Q3, the strongest since Q1 2024.

Figure 1: Retail sales growth continued into September

A sector still weak on a longer-term view

Despite this short-term improvement, the longer-term picture remains weak. Retail sales volumes so far this year are around 3% below their pre-pandemic (2019) level, underlining the lingering effects of cost-of-living pressures, higher interest rates and fragile consumer confidence.

At the same time, structural shifts in household spending have reshaped the retail landscape. Since the pandemic, consumers have channelled more of their budgets toward services and experiences - such as travel, dining, and leisure - and away from goods. This shift has left traditional retailers struggling to regain pre-Covid momentum, even as conditions have improved.

Headwinds from prices and policy

Even if fundamentals improve further, significant headwinds remain. Persistent food price inflation is eroding disposable incomes, squeezing discretionary budgets. And the upcoming Budget on 26 November could add further pressure if the Chancellor opts for broad-based rises in income tax, National Insurance or VAT.

What it means for retailers

For businesses, the message is clear: growth will be hard-won. Still-strong nominal wage growth and lower borrowing costs are helping to stabilise household incomes, and some consumers still hold pandemic-era savings buffers. These factors could support selective recoveries in discretionary spending, particularly among higher-income households or for value-focused brands.

However, overall demand is likely to remain subdued, with shoppers staying price-sensitive and selective about big-ticket purchases. Any rebound in sales volumes will likely be gradual rather than decisive.

Our take

It’s not all doom and gloom for retailers. Despite Budget concerns, Consumer confidence rebounded in October to its joint highest level of the year, and real wage growth continues to support spending power. Falling interest rates are also easing financial pressure and encouraging households to spend rather than save.

But with likely tax rises, persistent caution, and a structural tilt toward services weighing on the sector, a meaningful retail revival remains some way off.