UK Retail Sales Rise 2.5% in July, Driven by Inflation Rather Than Demand

UK retail sales rose 2.5% in July, driven by a 3.9% increase in food sales due to inflation. The British Retail Consortium (BRC) attributes the growth to higher prices, particularly in groceries, rather than demand. The BRC warns that retailers are struggling to cover the £7 billion in new costs imposed by the government, which may lead to further price hikes and job losses.

UK retail sales rose 2.5% in July, according to the British Retail Consortium (BRC) and KPMG data. The increase was primarily driven by a 3.9% rise in food sales, fueled by warm weather and a packed sporting schedule, including Wimbledon and the England women's football team winning the Euros [1].

However, the BRC attributes the growth to higher prices, particularly in groceries, rather than demand. Rising food inflation, now at 4%, has led to increased spending due to higher prices rather than improved demand [1]. Non-food sales increased by 1.4%, with fashion sales performing well early in the month but deteriorating as weather worsened. Homeware and indoor furniture sales grew steadily, recovering from the previous year's decline [1].

The BRC chief executive, Helen Dickinson, warned that the current sales growth is "barely touching the sides" of covering the £7 billion in new costs imposed on retailers by the government. Any further levies in the upcoming Autumn Budget could push up prices, leading to job losses and store closures [1]. This would have a significant impact on consumer spending and economic growth.

Separate figures from Barclays show consumer card spending grew 1.4% year-on-year in July, with discretionary spending up 2.4% due to changeable weather. Online retail spending, excluding groceries, grew by 4.9% [2]. However, confidence in the UK economy dipped to its lowest level since January, falling three points month-on-month to 22% [2].

The Bank of England is divided on how to tackle inflation, which has proven more stubborn than expected. The central bank has attributed inflation to tax rises and unemployment [2]. Retailers are feeling the strain, with budget chain Poundland and fashion brand River Island expected to close stores this year [2].

In conclusion, while UK retail sales showed growth in July, the underlying factors suggest that retailers are struggling to cover increased costs. The upcoming Autumn Budget will be crucial in determining the future of the sector.

References:
[1] https://www.perspectivemedia.com/retail-sales-boost-of-2-5-barely-touching-the-sides-of-costs-sector-warns/
[2] https://www.bloomberg.com/news/articles/2025-08-11/rising-uk-food-sales-driven-by-inflation-not-demand-brc-says