Retail sales up but retailers aren’t out of the woods yet

16 February 2024

The latest ONS figures show retail sales volumes increased by 3.4% in January, driven by department stores (5.4%), food (3.4%) and household goods (1.8%). 

Jacqui Baker, head of retail at RSM UK and chair of ICAEW’s Retail Group, comments: ‘A strong bounce back in retail sales last month provides a glimmer of hope for retailers following the sharp fall in December and a poor end to a tough year; but they’re not out of the woods yet. Retail spending was boosted by discounting in January and the continued demand for health and beauty products. 

‘January is typically a lacklustre month for the retail sector as consumers rein in spending after the Christmas period. But after a difficult Golden Quarter, the big uptick will feel like a win particularly when retailers are competing for spend as consumers look to chase away the January blues by booking holidays. 

‘Encouragingly, consumer confidence is on the up, reaching a two-year high in January. The hope is that if confidence continues to improve, this will result in a boost in retail sales figures. Plus, with a potential tax-free shopping U-turn and expected tax cuts on the chancellor’s agenda in the Spring Budget, households may be left with more money in their pockets, which could stimulate spending - providing a light at the end of the tunnel for retailers.’

Thomas Pugh, economist at RSM UK, added: ‘The massive rebound in retail sales volumes in January will help to ensure that the recession in the second half of last year stayed in 2023 rather than extending into Q1 of this year. What’s more, there was further clear evidence that weakening inflation is feeding through to the shopfloor as prices fell for the third consecutive month.

‘While January’s pace of growth is unlikely to be maintained there are plenty of reasons to expect retail sales volumes to gradually recover this year. By the summer, inflation should be back at around 2%, interest rates will likely be falling, and consumers may well be enjoying some significant tax cuts. This will kick start a consumer-spending led recovery that should feed through into growing retail sales and see the economy finally return to growth.’