The UK retail sector started the year with unexpectedly strong momentum. According to the Office for National Statistics, sales increased by 1.8% in January compared to December's 0.4% growth.

Year-on-year, the figure increased by 4.5%, following a revised 1.9% increase the previous month (previously reported at 2.5%). Thus, the actual figures significantly exceeded analysts' expectations, which had forecast growth of only 0.2% month-on-month and 2.8% year-on-year.

Online retail contributed primarily to this acceleration. Consumer activity was further supported by the government's autumn budget, which reduced uncertainty around the scale of tax changes to finance increased government spending.

Despite the strong start to the year, economists remain cautious in their forecasts. Moderate consumer spending growth is expected in 2026 amid persistent inflationary pressures and a tense labour market. The Bank of England previously left its key rate at 3.75%. However, the decision was made by a narrow margin of 5 to 4. Given slowing inflation and signs of weakening economic activity, the market is pricing in another rate cut as early as March.