Despite a late surge in holiday spending, UK retail sales grew just 0.7% YoY in 2024

The landscape: UK retail sales accelerated 3.2% YoY in December, up from 1.9% in the previous year and well ahead of the three-month and 12-month growth averages of 0.4% and 0.7%, respectively, per the British Retail Consortium and KPMG.

• But that late surge wasn’t enough to overcome a sluggish start to the holiday season. Q4 sales rose just 0.4% YoY and full-year sales increased 0.7% YoY in 2024.
• “Following a challenging year marked by weak consumer confidence and difficult economic conditions, the crucial ‘golden quarter’ failed to give 2024 the send-off retailers were hoping for,” said Helen Dickinson, British Retail Consortium CEO.

A tough environment: The challenging terrain isn’t likely to ease this year due to the Labour government’s October budget, which is increasing retailers’ labor costs by raising employer National Insurance contributions and the minimum wage.

• As these changes ripple through the economy, prices will rise and the labor market will weaken.
• For example, British fashion brand Next expects to offset a GBP 13 million ($16.24 million) increase in wage costs by raising prices about 1%. And, in a sign of the tough job market, the retailer noted that it had about 50% more applications for store associate positions during the holidays compared with the previous year.
• The retailer expects UK full-price sales growth to slow to just 1.4% in the 12 months to next January, down from a 2.5% gain in the year ended December 28. That’s a stark contrast to overseas online sales that are expected to grow 14%.
• The British Retail Consortium expects real sales to decline this year, as projected sales growth of 1.2% in 2025 is expected to trail the rate of inflation. While our forecast of 4.2% YoY growth is more optimistic, it was published before the release of the Labour budget.

Our take: UK retailers are in a tough spot. While a retailer like Next may be able to weather the UK’s challenges thanks to its strong ecommerce sales and growing international business, other merchants may not have those same levers to pull.

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