In July, UK retail sales rose by 0.6% month-on-month, exceeding the predicted 0.2% increase. Year-on-year, there was a 1.1% rise in retail sales, which was slightly below the anticipated growth of 1.3%. Adjustments were made to the previous month’s statistics, revising them to +0.3% for month-on-month and +0.9% for year-on-year changes.
Excluding autos and fuel, retail sales grew by 0.5% month-on-month, just over the expected 0.4%. Year-on-year, this category showed a 1.3% increase, slightly surpassing the expected 1.2%. Revisions were also applied to the prior month’s growth, bringing it to +0.6%.
Retail Sector Growth Factors
There was a reported 0.6% decline in retail sales volumes comparing the three months to July 2025 with the previous three-month period. This comes after a four-month streak of growth. Non-store retailers and clothing stores saw substantial growth, thanks to new product launches, good weather, and UEFA Women’s EURO 2025 boosting consumer activity.
Even with the positive retail sales numbers, the Bank of England is anticipated to focus more on inflation and its broader economic effects.
Looking back at the July retail sales data from our current position in early September 2025, the monthly beat appears to be a temporary distraction. The positive figures were largely driven by one-off events like the Women’s EURO tournament and good weather. We see the downward revision of the previous month’s data and the negative three-month trend as more indicative of the underlying consumer weakness.
The key driver for UK markets remains inflation, which is proving to be persistent. The latest figures for August 2025 showed headline CPI at 3.5%, still significantly above the Bank of England’s 2% target. This keeps the pressure on the Bank to maintain its hawkish stance ahead of its next meeting later this month.
Focus on Inflation and Consumer Confidence
This confirms that the Bank of England will likely look past the temporary strength in July’s retail report. Consumer confidence surveys support this view, with the most recent GfK reading for August dropping to -30, indicating deep pessimism among households about their financial situation. This divergence between headline retail sales and broader confidence is a bearish signal for the UK economy.
Therefore, we see the brief strength in the British pound following the July data release as a fading memory and a past selling opportunity. We should now be evaluating strategies that anticipate further sterling weakness against the US dollar, as the UK’s stagflationary environment looks more entrenched. Options that protect against a drop in GBP/USD below 1.22 in the coming months could be valuable.
This also informs our view on UK equities, particularly the domestically-focused FTSE 250 index. The pressure on the UK consumer suggests companies in the retail and hospitality sectors will face significant headwinds into the autumn. We should consider maintaining bearish positions on these sectors, as seen during the difficult economic period back in 2022 and 2023.
