UK Retail Sales Beat Forecasts But Outlook Weakens

The British Pound held broadly steady against the Euro and US Dollar after UK retail sales data came in stronger than expected, offering some support to the near-term growth outlook.

February retail sales volumes fell 0.4% month-on-month, a smaller decline than expected, while January’s gain was revised higher. Together, the data point to firmer consumer spending through the first quarter.

Pantheon Macroeconomics said the figures reinforce the view that household demand is supporting growth.

“Retail sales are supporting GDP in Q1,” Pantheon said. “Three-month growth has picked up, consistent with consumers beginning to spend more.”

However, the tone beyond Q1 is notably weaker.

“Consumers’ spending growth will ease in the coming months,” Pantheon warned, pointing to falling confidence and weaker survey data.

Goldman Sachs struck a similar note, arguing the headline resilience masks underlying fragility.

“The smaller-than-expected decline reflects volatility and prior strength rather than a clear improvement in trend,” GS said.

The bank added that much of the strength reflects earlier gains rather than fresh momentum.

“Retail data remain noisy and influenced by temporary factors,” GS noted.

The breakdown supports that view. Clothing sales fell as poor weather hit footfall, food sales declined, and some strength in niche categories may prove short-lived.

Both Pantheon and Goldman expect consumption to soften as the year progresses, particularly as higher energy costs and geopolitical risks weigh on sentiment.

“Confidence indicators have already deteriorated,” Pantheon said.

For sterling, the data offer only limited support. While Q1 growth looks slightly firmer, the broader outlook remains fragile.

With consumer momentum fading and risks building, the pound is likely to remain sensitive to incoming data and global developments.