UK Retail Sales Rebound Sharply In January But Concerns Persist
- Headline sales surge well above forecasts in January - Gains driven by auctions and online jewellery demand - Three-month trend points to only modest growth - Labour and inflation data paint mixed macro backdrop - Markets still leaning toward March BoE rate cut
LONDON – Volatile monthly data showed high street spending picked up sharply at the start of the year. However, the underlying picture tells a far more restrained story.
The Office for National Statistics (ONS) said headline retail sales surprised to the upside, rising 1.8% m/m in January, the largest increase since May 2024. The figure was sharply higher than the 0.2% forecast and December’s 0.4% gain. On an annual basis, sales jumped 4.5%, well ahead of the 2.8% forecast and a marked pick-up from December’s downwardly revised 1.9% rise.
Excluding fuel, sales grew 2.0% on the month, outperforming the 0.3% estimate and the prior reading. Core sales rose 5.5% y/y, well above the 3.6% expectation and December’s negatively revised 2.5% print.
Statisticians said auctions of items such as artwork and antiques drove volumes, suggesting gains were driven by narrow factors. Online retailers also saw a boost in sales, particularly jewellers, which reported unprecedented levels of demand. Department stores, food and household goods sales partially offset the gains.
Smoothing out the data
In the three months to January, sales rose 0.1% compared with the three months to October. Grant Fitzner, the ONS’s chief economist, said spending edged higher over the latest three months as sales picked up in the new year following a weak November.
“We must not get too carried away, however,” cautioned Jonathan Moyes, head of investment research at Wealth Club. “Whilst this is excellent news for our beleaguered retailers, retail sales are a volatile data point. One month is not enough to signal a turn in consumer sentiment.”
Source: ONS
A busy week
There has been a steady flow of economic news for the UK economy over the past week.
On Tuesday, labour market data highlighted further cooling in wage growth. Private earnings slowed to 3.4%, their lowest rate in five years. The ONS said public sector pay growth also eased in the latest period but remains elevated, still affected by some pay awards being implemented earlier in 2025 than in 2024.
Payrolled employees fell for a fifth consecutive month, in what Deutsche Bank’s Sanjay Raja described as worrying signs for the labour market.
A day later, headline inflation registered its largest drop in nearly a year, slowing to 3.0% y/y in January from 3.4% previously. Annual core CPI, which excludes energy, food, alcohol and tobacco, rose 3.1% last month, easing by a tenth from December but coming in a tenth above forecasts. Falling petrol prices were seen as a significant downside driver.
On Friday, the UK reported a surge in income, resulting in a record January surplus in public finances. Fitzner said the start of the year is traditionally a strong month for self-assessed tax receipts. “Revenue was strongly up on the same time last year, while spending was little changed, due to lower debt interest payments largely offsetting higher costs on public services and benefits.”
Implications for monetary policy
Following this week’s raft of data, interest rate futures have priced in around an 80% probability that the Bank of England will lower borrowing costs by a further quarter point to 3.50% when policymakers next vote on 19 March.
However, economists at Oxford Economics said deep divisions on the Monetary Policy Committee and mixed signals from this week’s data suggest the decision is more finely balanced.
“February's dovishness had been triggered by the MPC placing greater focus on the subdued growth outlook. This week's activity data was very strong, but we're sceptical the underlying picture is quite as positive, and we think the MPC will also interpret the data cautiously,” analysts at the consultancy wrote.
Governor Andrew Bailey and colleagues are set to testify before the House of Commons Treasury Select Committee on 24 February, which should provide further insight into their thinking.
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- Headline sales surge well above forecasts in January
- Gains driven by auctions and online jewellery demand
- Three-month trend points to only modest growth
- Labour and inflation data paint mixed macro backdrop
- Markets still leaning toward March BoE rate cut
By Harry Daniels
LiveSquawk News
@HarryDaniels71
20 February 2026 | 18:30 GMT
LONDON – Volatile monthly data showed high street spending picked up sharply at the start of the year. However, the underlying picture tells a far more restrained story.
The Office for National Statistics (ONS) said headline retail sales surprised to the upside, rising 1.8% m/m in January, the largest increase since May 2024. The figure was sharply higher than the 0.2% forecast and December’s 0.4% gain. On an annual basis, sales jumped 4.5%, well ahead of the 2.8% forecast and a marked pick-up from December’s downwardly revised 1.9% rise.
Excluding fuel, sales grew 2.0% on the month, outperforming the 0.3% estimate and the prior reading. Core sales rose 5.5% y/y, well above the 3.6% expectation and December’s negatively revised 2.5% print.
Statisticians said auctions of items such as artwork and antiques drove volumes, suggesting gains were driven by narrow factors. Online retailers also saw a boost in sales, particularly jewellers, which reported unprecedented levels of demand. Department stores, food and household goods sales partially offset the gains.
In the three months to January, sales rose 0.1% compared with the three months to October. Grant Fitzner, the ONS’s chief economist, said spending edged higher over the latest three months as sales picked up in the new year following a weak November.
“We must not get too carried away, however,” cautioned Jonathan Moyes, head of investment research at Wealth Club. “Whilst this is excellent news for our beleaguered retailers, retail sales are a volatile data point. One month is not enough to signal a turn in consumer sentiment.”
There has been a steady flow of economic news for the UK economy over the past week.
On Tuesday, labour market data highlighted further cooling in wage growth. Private earnings slowed to 3.4%, their lowest rate in five years. The ONS said public sector pay growth also eased in the latest period but remains elevated, still affected by some pay awards being implemented earlier in 2025 than in 2024.
Payrolled employees fell for a fifth consecutive month, in what Deutsche Bank’s Sanjay Raja described as worrying signs for the labour market.
A day later, headline inflation registered its largest drop in nearly a year, slowing to 3.0% y/y in January from 3.4% previously. Annual core CPI, which excludes energy, food, alcohol and tobacco, rose 3.1% last month, easing by a tenth from December but coming in a tenth above forecasts. Falling petrol prices were seen as a significant downside driver.
On Friday, the UK reported a surge in income, resulting in a record January surplus in public finances. Fitzner said the start of the year is traditionally a strong month for self-assessed tax receipts. “Revenue was strongly up on the same time last year, while spending was little changed, due to lower debt interest payments largely offsetting higher costs on public services and benefits.”
Following this week’s raft of data, interest rate futures have priced in around an 80% probability that the Bank of England will lower borrowing costs by a further quarter point to 3.50% when policymakers next vote on 19 March.
However, economists at Oxford Economics said deep divisions on the Monetary Policy Committee and mixed signals from this week’s data suggest the decision is more finely balanced.
“February's dovishness had been triggered by the MPC placing greater focus on the subdued growth outlook. This week's activity data was very strong, but we're sceptical the underlying picture is quite as positive, and we think the MPC will also interpret the data cautiously,” analysts at the consultancy wrote.
Governor Andrew Bailey and colleagues are set to testify before the House of Commons Treasury Select Committee on 24 February, which should provide further insight into their thinking.