UK retail sales fell in February for the first time in three months, according to official figures from the Office for National Statistics — a sign that consumer spending was already losing momentum before the Iran war began pushing energy prices higher.
Sales volumes dropped 0.4% during the month, unwinding part of the 2% jump recorded in January. The decline was smaller than analysts had anticipated, but it reflected a recognisable pattern: subdued demand at supermarkets, poor weather weighing on household goods and seasonal purchases, and shoppers becoming more deliberate about where they spend. Annual growth slowed to 2.5%, down from 4.5% in January. Over the three months to February, volumes were up 0.7% compared to the previous quarter, providing some cushion, but the directional shift was clear.
The figures are notable largely because of what they don’t yet capture. The data was compiled before the Middle East conflict escalated and before energy prices began their sharp climb. The months ahead are expected to be considerably harder for retailers and the households that sustain them.
Uneven Performance Across Sectors
Category performance varied widely. Video games, wine and sports supplements held up relatively well, while clothing retailers struggled — reflecting both seasonal factors and a broader shift toward more essential spending. Online retail provided some support, along with niche categories like art and collectibles, but the high street picture was weaker.
Rajeev Shaunak of MHA described the figures as “not as bad as feared” but flagged the sector’s exposure to external shocks. Melissa Minkow of CI&T noted that shoppers are increasingly weighing price, timing and necessity before committing to purchases — a behavioural shift that tends to persist once it sets in.
Confidence Falling as Energy Costs Rise
Separate data from GfK showed consumer confidence falling to -21 in March, its lowest level in nearly a year. Neil Bellamy of GfK described a “ripple of fear” spreading among households as they assess what the Iran conflict could mean for energy bills and living costs. Confidence readings at this level have historically preceded slowdowns in consumer spending, making the coming months a key watch period for retailers.
Economists are warning of a stagflationary risk — an environment where growth remains weak but inflation picks back up, driven by energy prices feeding through to fuel and utilities. In that scenario, the Bank of England faces pressure to keep rates higher for longer, increasing debt costs for households already stretched after several years of elevated inflation.
For retailers, the squeeze comes from both sides. Passing higher supply chain costs on to consumers risks dampening already fragile demand; absorbing them erodes margins that are in many cases already thin. Matt Swannell of the EY Item Club said the conflict has already worsened the outlook, while Ashley Webb of Capital Economics suggested the confidence drop could mark the beginning of a more sustained pullback in household spending. The February data alone suggests the sector was already on shaky ground before the latest wave of external pressure arrived.