​Retail sales defy expectations with September rise
UK retail sales volumes rose 0.5% month-on-month (MoM) in September, comfortably beating economists’ forecasts for a 0.4% fall. The positive surprise marks a continuation of summer momentum, with the August reading revised up to 0.6% from the initial estimate of 0.4%.
Annual retail sales growth accelerated to 1.5%, suggesting British consumers are regaining their purchasing power after months of pressure from high living costs. The improvement comes despite the current economic uncertainties and provides a welcome boost ahead of the crucial Christmas trading period.
​The figures represent a notable shift in consumer behavior, as households appear more willing to open their wallets for discretionary purchases. This suggests that the real income squeeze could finally be easing as wage growth outpaces inflation.
​Market participants viewed the data as broadly supportive of the UK economy, although the reaction was relatively muted as the data aligned with the broader picture of gradual improvement rather than signaling a dramatic acceleration.
​The clothing sector leads the quarterly profits
​The apparel and footwear sector demonstrated particular strength during the third quarter, with volumes increasing 4.4% compared to the second quarter (Q2). September’s monthly increase of just 0.1% suggests the sector could be pausing for air after previous strong gains, although year-over-year comparisons remain healthy.
Non-food store sales rose 0.9% in September, with technology and telecommunications retailers posting notable gains. This performance suggests that consumers are prioritizing purchases of higher-value items, potentially indicating greater confidence about their financial prospects.
​Excluding volatile auto fuel sales, retail volumes rose 0.6% month-on-month in September. The August figure was also revised upwards to 1.0% from the 0.8% initially reported, painting a picture of sustained momentum into late summer and early fall.
​The strength in non-essential categories contrasts with the more muted performance in grocery stores, where competition remains intense and households continue to seek value. This divergence suggests that consumers are becoming more selective about where they allocate their spending.
​Online retailers extend their winning streak
​Internet retailers recorded their eighth consecutive monthly increase in September, cementing online commerce as an increasingly dominant force in British retail. Third quarter (Q3) online spending increased 3.5% compared to the second quarter and 5% year over year.
​Online jewelers particularly benefited from elevated demand for gold, as both investors and consumers sought exposure to the precious metal. Gold’s role as an investment and luxury good has supported sales through both trading platforms and traditional retail channels.
​The continued strength of e-commerce reflects a structural shift in purchasing habits accelerated by the pandemic. While traffic on high streets has partially recovered, many consumers have permanently migrated to online channels in search of convenience and price comparison capabilities.
​This trend presents opportunities and challenges for retailers, who must balance investing in digital infrastructure with maintaining viable physical store networks. Those who successfully navigate this transition are likely to capture market share from slower-moving competitors.
​Consumer Confidence Shows Tentative Improvement
​The GfK consumer confidence index rose to -17 in October from a reading of -20 in September, suggesting that households are gradually becoming less pessimistic about the economic outlook. In particular, intentions to make major purchases reached their highest level in almost four years.
​The improvement in confidence metrics aligns with retail sales data, indicating that consumers are translating more optimistic sentiment into actual spending decisions. This represents a crucial change after a long period in which caution dominated household finances.
However, the confidence reading remains well below pre-pandemic levels and significantly below the long-term average. This suggests that consumers are moving out of pessimism rather than embracing outright optimism, keeping spending growth expectations measured.
​The rebound in major purchasing intentions could support sectors such as furniture, appliances and electronics heading into the year-end period. Retailers in these categories will be watching to see if intentions turn into actual purchases.
​Market reaction and individual stock movements
​The FTSE 100 opened slightly higher after the retail sales release, although the index lagged continental European stocks. UK stock market activity remained subdued as investors digested the implications for interest rate policy and corporate profits.
​Treasury yields declined by about 2 basis points across the curve, and the data did little to alter expectations about Bank of England (BoE) policy. Sterling pared earlier losses to trade near $1.33 and outperformed most of its G-10 peers, as retail figures supported a relatively constructive view of the UK’s economic resilience.
​NatWest raised its forecasts for 2025, boosting confidence in the banking sector. GlaxoSmithKline (GSK) has received US approval for its Blenrep cancer treatment, providing validation for its pharmaceutical pipeline and potentially opening up a significant revenue stream.
​Rio Tinto underwent changes at board level as directors resigned, while CVS Group launched a £20m share buyback programme. JTC extended bid submission deadlines for an ongoing acquisition, and investors are watching to see whether better terms could emerge. Those who track specific sectors can use our trading platform to monitor price movements in real time.
Outlook for retail performance in the fourth quarter
​September retail sales data sets interesting dynamics ahead of the crucial fourth quarter (Q4). While momentum appears positive, retailers face multiple headwinds, including rising energy costs, potential changes to labor regulations, and continued cost of living pressures affecting many households.
​The upcoming Christmas trading period will prove critical in determining whether the recent improvement in sales and confidence can be sustained. Early indications from consumer confidence surveys suggest that households are planning to spend, but the actual outcome will depend on several factors, including the weather, promotional activity and the flow of economic news.
​Investors considering exposure to UK retail can access the sector through a number of instruments. Those who want direct ownership could consider buying shares of individual retailers or relevant exchange-traded funds (ETFs) that track the sector. Alternatively, traders could use derivatives to gain exposure without directly owning the underlying securities.
​The retail sector remains sensitive to consumer confidence, employment trends and real wage growth. Tracking these indicators along with sales data will help investors assess whether the current momentum can be sustained through 2025 and beyond.
