In a significant economic development, UK retail sales volumes soared by 1.8% month-over-month in January 2025, dramatically surpassing analyst expectations of a modest 0.2% gain. The data, released by the Office for National Statistics (ONS) on February 21, 2025, represents the strongest monthly growth since April 2024 and marks a sharp rebound from December's revised contraction of 0.6%.
The 1.8% increase was nine times larger than forecasts and pushed year-on-year sales into positive territory at 0.7%. The surge was driven primarily by non-food stores, which saw a 3.0% volume increase, while food store sales grew by just 0.1%. Analysts attribute the unexpected strength to easing inflationary pressures, aggressive post-holiday promotions, milder winter weather, and potential pent-up consumer demand.
The immediate market reaction was pronounced. The British pound (GBP) strengthened significantly against major currencies, with the EUR/GBP pair plunging below the critical 0.8750 support level. This movement reflected traders reassessing the likelihood of imminent interest rate cuts by the Bank of England, as strong consumer spending could sustain inflationary pressures.
Economic institutions like the EY ITEM Club noted the data provides "tentative evidence that the squeeze on real incomes is finally easing," while Pantheon Macroeconomics highlighted the recovery in big-ticket item spending. However, experts caution that a single month's data doesn't confirm a sustainable trend, emphasizing the need to monitor subsequent wage growth, employment figures, and retail reports.
The data has broader implications for monetary policy, potentially leading the Bank of England to maintain a more cautious stance compared to the European Central Bank, which faces a weaker economic backdrop in the Eurozone. UK government bond yields edged higher, and equity markets responded positively, particularly for consumer cyclical stocks and the FTSE 350 Retailers Index.
