Big-Picture Snapshot

Drivers this month

• Food stores: +0.6pp
• Non-food stores: +0.7pp
• Online retail: +0.3pp
• Automotive fuel: +0.2pp

January’s 1.8% MoM retail sales growth outstripped December’s unchanged reading and dwarfed the 12-month average of 0.3%. The last time sales rose this sharply was in May 2025, when the index climbed 1.2%.^[1] The rebound comes after a volatile second half of 2025, which saw swings from June’s -2.7% drop to November’s -1.1% contraction and a tepid -0.1% in December.

Policy pulse

The Bank of England’s inflation target remains at 2%. January’s retail sales acceleration, if sustained, could complicate the central bank’s balancing act between supporting growth and containing price pressures.

Foundational Indicators

Market lens

Sterling rallied on the surprise upside in retail sales, with GBP/USD briefly touching a two-month high. The outsized print has prompted traders to reassess the UK’s growth trajectory. Equity markets responded with moderate gains in consumer-facing stocks, while gilt yields edged higher as investors weighed the implications for monetary policy. The January surge follows a period of subdued consumer activity, with retail sales having contracted in November and stagnated in December.

Historical context

• January 2026: +1.8%
• December 2025: 0.0%
• November 2025: -1.1%
• October 2025: +0.5%
• September 2025: +0.6%
• August 2025: +0.9%

January’s result stands well above the six-month trend, which averaged just 0.2% per month.

Chart Dynamics

Forward Outlook

Scenario spectrum

• Bullish (25–35%): Continued wage gains and easing inflation drive further retail growth, with MoM prints averaging 0.7% through Q2 2026.
• Base case (50–60%): Retail sales normalize to the 0.3–0.4% range as seasonal effects fade and cost-of-living pressures persist.
• Bearish (15–25%): Renewed inflation or policy tightening triggers a pullback, with sales growth slipping below 0.1% MoM.

Risks and catalysts

Upside risks include robust labor market data and further disinflation. Downside risks stem from higher borrowing costs, energy price volatility, and persistent real wage stagnation. The Bank of England’s next moves will be closely watched for their impact on household confidence.

Data source: UK Office for National Statistics (ONS), Sigmanomics database. Methodology: seasonally adjusted retail sales index, reported in nominal GBP terms, MoM percent change.^[1]

Closing Thoughts

Market lens

Markets welcomed the robust retail sales print, but caution remains over the durability of the rebound. Investors are weighing whether January’s strength marks a turning point or a temporary boost. The coming months will test the resilience of UK consumers as inflation and policy uncertainty linger.