Stagnant sales growth that resulted in the golden quarter failing to shine for the UK retail sector is predicted to continue throughout the first quarter of 2026, according to the Retail Think Tank.
The Retail Think Tank, a collaboration of industry experts that includes KPMG UK, provide a quarterly assessment on the state of play in the UK retail sector – most recently meeting to reflect upon Christmas performance and retail sales growth of 1.2 per cent in Q4 2025.
The group predict that a combination of factors will continue to limit retail spending growth throughout Q1 2026, including higher household essential costs, concern about the economy, and prioritisation of discretionary spend on holidays and experiences, health and wellbeing.
Growing use of resale sites, as well as usage of overseas online marketplaces, will also impact some retailers.
While food retail will likely achieve more modest growth, the Retail Think Tank forecast that many non-food categories will remain flat during Q1 - leading to retail sales growth* of 1% at best, against the same period last year.
But while the outlook for the sector as a whole is muted, the group say that innovation, resilience, and a relentless focus on value are all factors that will see some individual retailers outperforming the sector.
Linda Ellett, Head of Consumer, Retail and Leisure for KPMG UK, said that “a combination of factors held back retail sales growth in what was meant to be the golden quarter for the sector and these look set to also keep growth levels stagnant throughout the first quarter of this year.
"But, as we saw at Christmas, some retailers will outperform the sector average, defying the challenging consumer climate and highlighting that there remains opportunity for specific channels, categories, and brands to thrive.”
Reflecting on the macroeconomic landscape, James Sawley, UK Head of Retail and Leisure for HSBC, said: “while UK consumers have benefited from real wage growth through 2024–25, this uplift has been modest and is now fading.
"Real disposable income growth is expected to slow materially in 2026, with elevated household savings above pre-pandemic norms being offset by persistent job insecurity and a cautious outlook for the wider economy.”
Retailers need to continue to invest, despite the challenging consumer spending landscape, with Natalie Berg, Retail Analyst for NBK Retail, saying that “this year will be another year of navigating disruption, from ongoing geopolitical instability to weak consumer demand and sustained pressure on labour and supply chains. But retailers will still need to make targeted strategic investments, such as cybersecurity.
“Channel complexity will continue to intensify, driven by the growth of resale and social commerce, AI and the emergence of agentic AI, and the entrenchment of digitally native disruptors. While the temptation will be to maintain a presence across every touchpoint, retailers must ultimately be guided by customer relevance rather than channel proliferation. There is a careful balance to be made of technological innovation, operational efficiency, and sustainability.”
Bricks and mortar portfolio continues to remain a primary vehicle for growth for many retailers, when the location is right, says Jonathan De Mello, Founder and CEO of JDM Retail.
Adding that “the April business rates changes remain the defining event for retail property in 2026, adding pressure to already tight margins for a number of retailers. Retailers continue to scrutinise locations, related exposure to other costs such as rent and surcharges, while also looking to capitalise on shifts in consumer spending toward the likes of leisure, health and beauty.”