UK retail sales fell for the first time in three months in February, underlining the fragility of consumer spending even before the latest global energy shock took hold.
Data from the Office for National Statistics (ONS) showed sales volumes fell 0.4 per cent over the month, reversing a 2 per cent rise in January. Although the decline was less severe than analysts had predicted, it signals a weakening in the retail sector at a time when economic conditions were already tightening.
The slowdown came amid subdued consumer demand as supermarkets reported weaker volumes and poor weather dampened sales of household and seasonal items.
Crucially, the figures were compiled before the escalation of the Middle East conflict with Iran, a development that is expected to drive up inflation and place additional strain on household finances in the coming months.
Economists warn that rising energy costs, already reflected in fuel prices and electricity bills, are likely to further erode disposable income and force consumers to curb discretionary spending.
Retailers are also bracing for rising costs in supply chains, with some, including major retail chains, signaling price increases could be unavoidable if disruptions continue.
Despite the monthly decline, the overall trend remains slightly more positive in the last quarter. Sales volumes rose 0.7 percent in the three months to February compared to the previous period, helped by stronger online activity and niche categories such as art and collectibles.
However, annual growth slowed to 2.5 percent from 4.5 percent in January, suggesting the pace of the recovery is weakening.
Performance varied across sectors. While categories such as video games, wine and sports supplements performed relatively well, apparel retailers struggled, reflecting both seasonal factors and changing consumer priorities.
Analysts say the data highlights a shift in consumer behavior with households becoming pickier about their spending.
MHA’s Rajeev Shaunak said the numbers were “not as bad as feared” but pointed to the sector’s vulnerability to external shocks.
“Households are likely to remain cautious, prioritizing essential spending and limiting discretionary purchases,” he said.
CI&T’s Melissa Minkow added that buyers are increasingly taking time to assess value before purchasing, weighing factors such as price, timing and necessity more carefully than in previous years.
Separate data suggests that consumer sentiment is already starting to deteriorate. The GfK consumer confidence index fell to -21 in March, its lowest level in almost a year, as households expressed increasing concerns about the overall economic outlook.
GfK’s Neil Bellamy said a “wave of fear” was spreading among consumers as they assessed the possible impact of the Middle East conflict on prices and living standards.
The loss of confidence is seen as a leading indicator of future spending patterns and raises concerns that retail demand could weaken further in the coming months.
Economists assume that retail will come under greater pressure as the year progresses. Matt Swannell of EY Item Club said the conflict had already worsened the outlook, while Ashley Webb of Capital Economics suggested the loss of confidence could mark the start of a sharper slowdown in household spending.
With inflation expected to rise again and interest rate cuts now less certain, the risk of a “stagflationary” environment, where growth is weak but prices continue to rise, is becoming a key concern.
The challenge for retailers is balancing rising costs with weak demand. Passing on higher costs runs the risk of reducing sales even further, while absorbing these costs reduces already tight margins.
February figures suggest the UK retail sector was already on shaky ground before the recent global shocks. As pressures mount, the coming months are likely to test both the resilience of consumers and the adaptability of businesses across the street.
