British shoppers made a comeback in January, as bargain hunting drove the first monthly increase in retail sales volumes since August of the previous year.
According to the Office for National Statistics (ONS), retail sales volumes rose by 1.7% in January, following a 0.6% decline in December, surpassing analysts' expectations of a modest 0.3% growth, as reported by .
This surge was largely attributed to a 5.6% increase in food sales, which experts believe was fueled by spending on discounted items.
However, sales volumes at non-food stores, including department, clothing, and household shops, dropped by 1.3% over the month, with retailers and household goods stores citing reduced consumer confidence as the primary cause.
Alice Cowley, Retail Strategy Managing Director at Accenture, noted that the results were "not the splash retailers will have wished for," as consumers continued to be frugal with their spending post-Christmas.
Cowley added, "This past three-month period has fallen short of expectations for many, as shoppers increasingly prioritised essentials only in non-food categories and turned to own label food products, weakening margins."
Analysts have cautioned that relying heavily on discount spending will further erode already-thin profit margins, a situation that will be exacerbated by significant tax increases set to hit the retail sector in April.
The British Retail Consortium (BRC) has warned that the sector will face an additional £7 billion in costs due to the combined effects of a higher minimum wage, packaging tax, and changes to employer's national insurance contributions.
Kris Hamer, Director of Insight at the British Retail Consortium, has expressed concern over the unpredictable nature of the retail sector in the coming months: "With consumer expectations for the economy falling almost 40pts since July 2024 and an unsteady job market, the next few months are hard to predict."
He also highlighted the financial strain on the industry, stating, "This boost to sales barely touches the sides of the £7bn in new costs from the Budget and packaging levy facing the industry this year."
Earlier in February, a group of influential retailers warned that hundreds of thousands of jobs could be jeopardised in the retail sector due to unsustainable cost increases this year.
Peel Hunt has projected that retail firms within their coverage will experience an average pretax profit drop of 7.5 per cent due to the Budget's tax hike, with some companies being more severely impacted than others.
Matt Dalton, Consumer Sector Leader at Forvis Mazars, urged caution when interpreting recent figures: "A closer look at the numbers suggests that there may not be as much to celebrate as one may think."
He pointed out that "The main upside driver was food stores. The most recent inflation survey suggests that food inflation is picking up, which might account for stronger sales. We would be reserved, also given the Bank of England's recent severe downgrade of º£½ÇÊÓƵ economic prospects."
