U.K. retail sales show modest recovery in June after May slump

UK retail sales volumes rose by a weaker-than-expected 0.9% month-on-month in June, contributing to a significant slowdown in second-quarter retail growth to just 0.2%. This modest performance, alongside a slight dip in consumer confidence, reinforces projections for soft 0.1% UK economic expansion in Q2 2025 and introduces downside risks to 2025 consumer spending forecasts, despite ongoing real wage increases.

Analysis

UK retail sales data for June indicates a fragile consumer environment, with month-on-month volume growth of 0.9% falling short of the 1.2% consensus forecast and recovering less than a third of the 2.8% decline seen in May. This contributed to a significant deceleration in quarterly growth, with retail volumes expanding just 0.2% in Q2 2025, a sharp drop from the 1.3% gain in Q1. The weakness is sector-specific, with household goods sales contracting for a second consecutive month, reflecting a struggling housing market. This soft retail performance corroborates economic projections of a meager 0.1% GDP growth for the second quarter. Furthermore, a dip in the GfK consumer confidence measure to -19 in July suggests persistent headwinds. Despite the positive signal of rising real wages, the combination of weak sales data and deteriorating sentiment introduces tangible downside risks to forecasts for full-year consumer spending growth of 1.4% in 2025.

Key Decisions for Investors

• Investors should exercise caution on UK-focused consumer discretionary stocks, as the weaker-than-expected retail sales and falling consumer confidence signal potential headwinds for revenue and earnings.
• The data reinforces expectations for a near-stagnant UK Q2 GDP growth of 0.1%, prompting a potential downward revision of full-year economic and consumer spending forecasts.
• Monitor upcoming leading indicators, particularly consumer confidence and housing market data, to determine if the current weakness is a temporary slowdown or the beginning of a more entrenched negative trend for the UK consumer.