The Great British Shopping Paradox

As we move into the final quarter of 2025, with global uncertainty unabating and growth stagnating, the outlook for the UK retail sector is heavily dependent on the mood and strength of the consumer. In this article, we explore how consumers are feeling, how (and how much) they are spending and what they are spending on. And ultimately what it all means for the retail industry.

Starting with the positives – the latest UK consumer confidence Index from GfK rose to -17, the highest point of the year. While still low in historic terms, consumers have been boosted by the recent Bank of England interest rate cut, which led to improved household sentiment on personal finances in particular.

And retail sales continue to hold steady - sales volumes rose 0.6% m/m in July according to ONS data, building on June's 0.3% gain. Higher sales in July were largely driven by increases in non-food and non-store retailing, mainly attributed to summer sporting events and continued good weather. This was more than enough to offset a minor fall in food sales.

However, despite these positive short-term trends, sales in the second quarter overall were below that of the first quarter by 0.6% in volume terms, as momentum has stalled somewhat. The consumer mood can be characterised as stoic, cautious and uncertain, with continued concerns over high inflation, rising unemployment, and potential future tax increases, which are clouding sentiment and creating a fragile environment for consumers. 

However, looking forward there is optimism that households will shed some of the caution that has characterised the past couple of years. The household savings ratio stood at 10.6% in Q1 2025, indicating that consumers are saving less and potentially willing to spend again. Slowing real income growth is likely to constrain growth, but consumer spending is forecast to continue to increase at an annualised pace of around 1%. The next 18 months is expected to see a moderately resilient performance in the retail sector and for consumer spending more broadly.

Despite the economic pressures, consumers are demonstrating increasingly sophisticated behaviour. Notably, they are adopting more intentional spending patterns, driven by a desire to ‘bring joy’ back into their lives despite financial pressures, making strategic sacrifices in some areas to allow freedom in others. This represents a sophisticated evolution from purely defensive spending behaviours seen previously. They are also prioritizing experiences and sustainability, with 46% willing to pay more for sustainable products (rising to 66% among high earners over £80,000).

The era of consumers choosing between online or physical stores appears to be over - 81% of consumers regularly shop online while 83% regularly visit physical stores, according to recent research from MRI. This ‘channel rebalance’ indicates that consumers are being encouraged to visit physical locations more frequently to seek deals and stretch budgets, while online propositions may weaken as retailers increasingly charge for delivery and returns. The result is a beautifully chaotic omnichannel reality that is bad news for any retailer that thought they could ‘pick sides’.

Perhaps surprisingly, younger shoppers are at the forefront of the return to the store, with those aged 25–34 recording the highest number of visits to physical retail destinations, according to MRI’s research. They frequently use stores as research touchpoints in multichannel journeys - 69% visit stores to see products before purchasing online. This all part of the increasingly digitised customer journey, reflected in heightened consumer expectations for digital support across awareness, research, purchase, fulfilment and returns processes.

Additionally, we are seeing rising consumer expectations for ethically and sustainably produced products, though resistance remains regarding willingness to pay premiums. 46% of consumers are willing to pay more for sustainably produced products, an 8% increase from the previous year - this rises to 66% among high-income households earning over £80,000.

Successful retailers will be those who understand and react to these consumer trends. Hybrid shopping has become the new normal, requiring retailers to create seamless experiences across all touchpoints rather than choosing between channels. They also need to maintain competitive value propositions, understand target markets and strategically invest in technology while building sustainable, experience-rich physical operations.

This required investment for retailers comes against the backdrop of rising cost pressures elsewhere, notably minimum wage requirements plus the upcoming business rates reform. Effective April 2026, this will introduce higher surcharges on properties above £500,000 rateable value, adding £600 million in tax burden to major retailers. Meanwhile, interim changes have reduced retail, hospitality, and leisure relief from 75% to 40% for 2025-26, creating immediate financial pressure on independent retailers.

Several major retailers have already undergone financial restructuring this year, including Poundland (sold for £1 with 68 store closures planned), Claire's Accessories (exploring sale with 90 stores at risk), and River Island (closing 33 underperforming stores). However, the broader market impact remains limited, with fewer than nine retail operators entering insolvency in the year to April 2025, affecting just 283 stores nationwide (according to the Centre for Retail Research). Significantly, vacancy rates remain stable with high street voids at 13.6% and shopping centres at 16.9%, showing negligible quarterly changes.  

This is all reflective of a retail market that is experiencing typical churn and evolution rather than widespread financial distress. This market resilience is being supported by diversified tenancy and flexible leasing arrangements that are helping maintain store vitality, despite ongoing economic pressures. In addition, consumer trends are broadly acting as market tailwinds, in particular the ‘return to the store,’ which is contributing to positive footfall momentum (Q2 saw YoY growth across all sectors: shopping centres +1.4%, high streets +1.1% and retail parks +2.5%). All in all, the UK retail sector is successfully navigating complex economic headwinds, and demonstrating surprising resilience across core fundamentals. UK retail still isn't dying, rather evolving into a challenging ecosystem where sophisticated consumers reward only those retailers clever enough to serve them everywhere, and with excellence.