Retail sales index

Over the five-year period through 2025-26, the retail sales index - volume, seasonally adjusted - is forecast to decline at a compound annual rate of 0.5% to reach 98.8 points. Since 2013-14, when the retail sales index recorded 2.1% year-on-year growth - this was the first time the index had recorded annual growth of 2.1% or more since 2007-08 (2.5%) - retail sales volumes had grown at a relatively steady pace thereafter, underpinned by rising consumer confidence. Since the nadir of post-financial crisis downturn, rising consumer confidence was epitomised by strong retail sales in the run up to the EU referendum as households increased unsecured borrowing, halted deleveraging, and benefited from a rise in average earnings. Meanwhile, relatively low inflation compounded growth in retail sales and the index grew by 4.1% and 3.5% in 2014-15 and 2015-16 respectively. Despite gloomy expectations of a post-EU referendum slowdown in retail sales, the index accelerated by 4.3% year-on-year in 2016-17. Supportive monetary policy by way of then record-low interest rates - in August 2016, UK interest rates were cut from 0.5% to a then record low 0.25%, representing the first cut since 2009 - encouraged consumer retail spending by reducing the incentive to save.

However, volume retail sales grew by a comparatively modest 1.6% year-on-year in 2017-18 as the availability of consumer credit tightened following the EU referendum result; as inflation gathered pace, thus weighing on consumers' purchasing power; and as real wage growth was relatively stagnant. Meanwhile, the Bank of England's (BoE) decision to raise interest rates in November 2017 - this was the first rise since July 2007 - to a certain extent dampened the propensity to spend. While month-on-month retail sales volumes were relatively volatile throughout 2018-19, overall growth of 3.3% in the year beat widespread expectations. Despite the presumption that Brexit-related uncertainty would adversely affect consumer sentiment, and irrespective of the BoE raising interest rate to 0.75% - this was the highest level since 2009 - UK retail sales, led by non-store retailing (e.g., internet shopping), accelerated as consumers appeared unfazed by concerns regrinding the UK's post-Brexit outlook and continued to shop. Epitomised by then record-low unemployment levels, the UK's seemingly resilient labour continued to support consumer spending growth 2019-20; the retail sales index increased by 1.6% year-on-year.

Nevertheless, marking what is the slowest rate of year-on-year growth in the index since the latest annual decline reported in 2011-12 (-0.9%), growth in the retail sales lost momentum following the onset of the COVID-19 (coronavirus) pandemic, growing by just 1.1% in 2020-21. The COVID-19 (coronavirus) pandemic and consequent market disruption hit retailers of the bricks-and-mortar kind in particular, with stay-at-home orders and lockdown measures causing footfall to plummet. The UK market was subject to three national lockdowns – the Spring 2020 lockdown, a second extending from early-November 2020 through early-December 2020, and a third officially being in effect since 5 January 2021 – with all restrictions being lifted 19 July 2021. Pressure on retail sales was initially acute, with restriction pertaining to the Spring 2020 lockdown bringing bricks-and-mortar trade to an effective standstill. As per ONS data, the retail sales index declined by 4% and 14.5% on a monthly basis in March 2020 and April 2020 respectively; year-on-year, the index was down 4.7% and 18.4% respectively. According to marketing consultancy firm CACI, UK retailers were subject to a 60% decline in footfall during the second week of March 2020 consequent of public health warnings in the early stages of the domestic outbreak. With the government announcing a series of social-distancing and mandated lockdown measures (e.g., forced temporary closure of non-essential businesses), non-critical bricks-and-mortar retailer footfall dropped to zero overnight as many business owners were instructed to close their doors temporarily.

Yet, while declines in retail sales volumes were undoubtably significant, any would-be exponential declines beyond those recorded in the bricks-and-mortar segment were to a certain extent stemmed and counterbalanced by e-commerce sales as consumers swapped the high street for the internet. According to the ONS, the proportion of total retail sales attributed to online retailing stood at 19.1% in February 2020, the last month or "normal" trading conditions in the UK market prior to coronavirus; albeit, this figure subsequently increased for three consecutive months, rising to 22.1%, 30.3% and 32.8% in March 2020, April 2020 and May 2020 respectively. While internet sales as a proportion of total retail sales proved somewhat volatile thereafter, with society being subject to intermittent lockdown measures before tentatively reopening, they have remained above the long-term average, having recorded a rate of 27.3% in May 2021. Compounded by the gradual return of shoppers to the high street, a pandemic-induced acceleration in the e-commerce market ensured growth in the retail sales index ensued.

Heading deeper into 2021-22, retailer activity continued to recover, growing by 5.3% year-on-year. As per ONS data, the monthly retail sales index in May 2021 (113.4 points) was up 21.7% compared to May 2020 (93.2 points), and was up 10.6% relative to the level recorded in February 2020 (102.5 points), the last month of what is assumed to have been regular consumer spending patterns and market conditions prior to the onset of the pandemic. Temporary stimulus support and policy mechanisms intended to spur consumer market recovery, such as interest rates being cut twice and ultimately to a record-low 0.1% on 19 March 2020 to deflate the cost of borrowing, have played a vital role in maintaining consumer spend. Meanwhile, the ONS recognised that "the easing of restrictions for hospitality and non-essential retail" had no doubt contributed to sustained growth in the retail sales index. Nevertheless, industry leaders suggested indicative optimism in consumer markets, as the tentative reopening of the economy continued and while the Bank Rate had been maintained at 0.1% up until 16 December 2021, on this date the Bank Rate was raised to 0.25%.

However, over the course of 2022-23, the retail sales index declined for the first time since 2011-12, falling by 5.5%. This is a product of an array of macroeconomic headwinds the UK faced – including surging inflation partially caused by the Ukraine-Russia fuelled energy and supply chain crisis which exceeded wage growth, dampening real household disposable income.

Furthermore, the United Kingdom's annual inflation reached a four-decade high of 11.1% in October 2022 amid rising food and energy prices, the highest among G7 economies. In response to rising inflation, the BoE raised the official bank rate eight times between March 2022 and March 2023, from 0.75% to 4.25%. As a result of rising rates and stubbornly high inflation, consumer confidence tanked in 2022-23. With confidence low and disposable incomes squeezed, the retail sales index dwindled in 2022-23.

In 2023-24 (97.1 points), the retail sales index slipped by 2%. The BoE had consistently hiked rates to combat stubborn inflation – in August 2023, the official bank rate increased to 5.25%, where it remained for the rest of 2023-24. This caused people to prefer to save their money than spend it online.

In the two years through 2025-26, falling interest rates and stabilising inflation led to increased spending with the retail sales index increasing by 1% to 98.8 in 2025-26.