UK retail sales defy expectations, offering economic boost amid U.S. trade tariffs

UK retail sales recorded a surge of 1.6% for the first quarter of the year, the strongest reading in four years. The figures also provided a 0.08 percentage point boost to the UK’s overall economic output for Q1.

The UK reported the best Q1 since 2021 in what may be a boost for the economy, amid rising bills and the U.S. trade war increasingly weighing on consumer morale. The International Monetary Fund noted that trade barriers were at the highest level in a century, even after Trump’s pause on reciprocal tariffs.

UK reports rise in retail sales for Q1

Mixed UK consumer data this morning. To the positive side, another decent month (March) for retail sales, up 0.4% MoM and 1.6% QoQ. Sales volumes at their highest since July 2022, driven by weather-dependent items after the one of the sunniest March on record (1/2) pic.twitter.com/kCojvxyxzB

— Simon French (@Frencheconomics) April 25, 2025

British retailers reported a surge of 1.6% in retail sales for the first quarter of the year. The data provided a 0.08 percentage point boost to overall economic output for Q1, which may prove to be a high watermark for Britain’s consumer economy for the foreseeable future.

The Office of National Statistics noted on Friday that retail sales rose by 0.4% in March alone, following a downwardly revised growth of 0.7% in February. A Reuters poll of economists had also forecasted a month-on-month fall of 0.4%.

Data from UK’s consumer confidence report showed a drop in April to its lowest level since late 2023. Market research company GfK suggested rising household energy bills and uncertain global financial markets as reasons for the fall. 

Head of Commercial Content at Retail Economics Nicholas Found acknowledged that British retailers face an uphill battle to protect margins, sustain investment, and navigate an increasingly complex trading environment. He also argued that the outlook is further clouded by uncertainty around U.S. trade tariffs, which can potentially disrupt shipments if orders are canceled.

UK expects growth shock amid Trump’s trade policies

Bank of England Governor Andrew Bailey mentioned on Thursday he was focused on an expected shock to growth from U.S. President Donald Trump’s trade policies and retaliatory measures by other countries. 

The Office of National Statistics also noted that clothing and outdoor retail chains said weather helped sales last month despite supermarkets struggling. The UK’s two biggest food retailers, Tesco and Sainsbury’s, warned that profit growth was unlikely this year amid a potential price war.

Bailey highlighted that the UK economy faces a “growth shock” as a result of Trump’s trade policies. He spoke on the sidelines of the International Monetary Fund (IMF) meetings in Washington and argued that while he did not think the UK was close to recession at the moment, “we are certainly quite focused on the growth shock.”

Earlier this week, the IMF lowered its 2025 growth forecast for the UK to 1.1% from the 1.6% it had been expecting as recently as January prior to tariff announcements. The financial institution’s downgrade followed similar negative revisions by the Bank and the government’s independent forecaster, the Office for Budget Responsibility. 

Chancellor of the Exchequer Rachel Reeves is expected to discuss the prospects for a UK-U.S. trade agreement when she meets with the U.S. Treasury Secretary, Scott Bessent. She also mentioned on Wednesday the UK was “not going to rush” into a deal.

“We think that ratcheting up benefits no one, and instead, we’re approaching the dialogue with cool heads and a pragmatic realism about what we want to achieve.”

-Rachel Reeves, Chancellor of the Exchequer.

Britain recently offered other concessions, such as reducing the 1 billion euro digital service tax, which affects U.S. tech firms. Reeves also added she would be prepared to cut tariffs on some U.S. imports if it helped to seal an agreement. She insisted food standards and other regulations were not up for negotiation.

IMF’s managing director, Kristalina Georgieva, praised the UK’s growth policies and also applauded Reeves’s efforts to lift up growth in the UK. She noted that Reeves was tackling tough issues, including prioritizing spending and making the regulatory environment more rational.

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