TD Securities’ Global Strategy Team expects UK retail sales growth to slow in January to 0.1% month-on-month, compared with a market forecast of 0.2% and a prior reading of 0.4%. It expects consumer spending to remain resilient, but with a more moderate underlying trend.
The team notes that December retail patterns were affected by jewellery purchases. It does not expect that strength to carry into the January data.
Uk Data Momentum Moderation
It expects some easing in momentum in UK Purchasing Managers’ Index readings for both manufacturing and services. Even so, it forecasts PMI levels of 51.5 for manufacturing and 53.5 for services, matching market expectations.
It links earlier improvements in sentiment and orders to uncertainty easing after the budget. It expects that effect to fade around three months after the event.
For 2026, the team expects periods of expansion, but with overall growth remaining cautious.
We are seeing signs that the UK consumer is becoming more cautious, with retail sales growth expected to slow. This aligns with recent Office for National Statistics data showing January’s inflation remained unexpectedly sticky at 2.8%, complicating any potential rate cuts from the Bank of England. This persistence in inflation suggests consumer spending power will remain constrained in the near term.
Derivative And Fx Strategy Implications
The expected softening in the upcoming PMI figures, even while they remain in expansionary territory, reinforces this view of moderating momentum. The surge in business confidence we observed in the final quarter of 2025, following the resolution of the autumn budget, now appears to be normalizing. This suggests that the market may have gotten ahead of itself, pricing in a more robust recovery than is actually materializing.
For derivative traders, this environment points towards selling volatility, as explosive upside growth seems less likely. With the FTSE 100’s implied volatility still slightly elevated compared to historical averages from 2023-2024, strategies like selling covered calls on UK equities or initiating short strangles on the index could be attractive. These positions would profit from a market that moves cautiously or trades sideways rather than making a significant breakout.
In the currency markets, this cautious UK outlook puts a cap on the pound’s potential strength. Given the Bank of England is likely to remain on hold, option strategies that bet on GBP/USD remaining within a defined range, such as iron condors, could perform well in the coming weeks. Any rallies in sterling should be viewed as potential opportunities to sell into, rather than the start of a sustained uptrend.
