The performance of the UK retail sector over the last three months has been characterised by stronger than expected volume sales growth despite persistent inflation, a weakening job market and deteriorating consumer confidence in the state of the UK economy. Data from the Office for National Statistics (ONS) shows that retail sales grew 0.9% in Q3 compared with Q2 2025.

The performance of the retail sector was broad based, with good weather in July and August helping sales of clothing, while household goods and other stores showed the highest growth in September, driven by strong sales of computers and mobile devices as consumers rushed to acquire the latest iPhone model. These signs of easing on big-ticket purchases are echoed in our Tracker’s spending data for Q3 with a modest quarterly growth in purchases of major household appliances, electricals, and furniture and homeware. Several factors could have contributed to consumers feeling less reluctant to spend on larger purchases including the employment market showing signs of stabilising. Recent ONS data shows that the slowdown in the jobs market was steadying compared to some steeper declines earlier this year following tax increases since April. Total pay growth has remained strong, while households have also found it easier to access credit to make larger purchases as the borrowing environment improved due to lower interest rates.

In contrast, food store sales volume showed very modest growth of 0.1% over the quarter and dipped 0.1% in September. Food sales volumes have been volatile in recent months, according to data from the ONS. After recovering in the summer following a slump in the spring they recently fell again.

The figures reflect the squeeze on household spending from higher food prices. Food inflation has surged in recent years, reaching a peak of nearly 20% in early 2023, before gradually slowing but remaining elevated. However, the total cost of groceries remains substantially higher than in previous years. Consumers have responded by buying fewer items and switching to cheaper brands. Inflation has also heightened consumers' focus on value. Our data shows that on balance there is a greater share of consumers buying more supermarkets' own-brand products, or buying goods discounted or on promotion every quarter since we started tracking this behaviour in Q4 2023.

As the UK grocery retail sector grapples with persistent food inflation and significant cost pressures, it is also experiencing intensified price competition including more aggressive price-cutting strategies to attract value-conscious consumers. In addition, the sector is defined by the continued rise of discounters and the evolving omnichannel strategies of major players. The demand for hybrid shopping models, including online ordering and in-store pick-up, continues to grow. Consumers are increasingly using multiple channels to shop for food. The UK grocery market faces a challenging environment, but resilient retailers that can balance price, technology and customer experience are well-positioned for modest but steady value growth.

UK online retail sales continue to experience sustained steady growth. ONS data shows the amount spent online rose by 3.5% in Q3 2025 compared with the previous quarter. The proportion of sales made online as a share of total retail sales increased to 27.9%, representing the highest penetration of online retail since the end of the pandemic.

The growing use of artificial intelligence (AI) when shopping has also played a part in the continued increase in online sales. According to our research, 18% of consumers have used AI tools as a source of information when choosing what product or service to buy, a higher proportion compared with the previous quarter (15%). One of the most widely used AI assistants recently launched an in-chat shopping and payment feature, allowing users to buy directly on the platform from third-party sellers¹. As the technology expands it has the potential to change the way people shop online including moving away from the traditional search engines. Analysts anticipate that traditional search engine volume will fall 25% by next year, owing to the rise of generative AI chatbots and agents. Retailers and brands need to prepare for a world where transactions occur on chatbots, rather than their own websites.

Managing rising costs while offering consumers more value

Retailers, like most businesses in the UK, are having to deal with increased taxes and costs following last year’s Autumn Budget. At the same time retailers are faced with intense competition and lingering consumer price sensitivity. In a sign that consumers are remaining cautious, the household savings ratio, the proportion of disposable income that is not spent on consumption, rose to 10.7% in the second quarter of 2025, well above the 5.6% average in the three years before the pandemic. Indeed, higher levels of inflation since the pandemic have not only made consumers more cautious, it has also affected their views of what is a fair price and what is good value. A recent report from Deloitte, shows that these shifts in value perceptions have led to higher levels of value-seeking behaviours including more cost-conscious, deal-driven, or convenience-sacrificing behaviours, with a higher proportion of consumers across all demographics expecting more value for the asking price. Given the more discerning consumer, retailers should ensure they focus on delivering more value for the price. Retailers should also recognise that while income limitations may motivate lower-earning and fixed-income households to focus on value, a wider range of factors has contributed to higher-income consumers seeking value—including their views on the economy, job opportunities, retirement plans, housing affordability, maintaining lifestyle and desire to travel. Retailers will want to segment customers to create tailored strategies, for example by targeting budget shoppers with promotions on essentials while focusing on quality and experience for higher-income segments.

Outlook for Q4 2025

Despite the recent unexpected resilience of the retail sector and growing consumer confidence over the last quarter, retailers face several headwinds in Q4. The main challenges for the sector are linked to increased costs and consumers remaining cautious due to persistent economic uncertainty including the possibility of further tax rises following the November Budget. There were nine profit warnings among listed retailers in the third quarter, the highest number since the end of 2023.² In addition, our data shows that while consumers expect to spend more on day-to-day expenditures, they also intend to spend significantly less on discretionary categories in the final quarter of 2025. Essential categories impacted by persistent inflation are expected to drive the increase in consumer spending including on groceries and utilities. As a result, spending in most discretionary categories including those related to socialising is expected to fall in the final quarter of the year. Despite consumers’ lower expectations for Q4, retailers will be hoping that the momentum in consumer spending seen in Q3 can be maintained in the final quarter of the year. Overall, the best prospects of a consumer recovery in the months ahead will depend on an easing of inflation and further interest rate cuts.

References

1. OpenAI takes on Google, Amazon with new agentic shopping system | TechCrunch

2. UK profit warnings rise as business blames trade tariffs and policy shifts