UK retail sales fell in July following a strong performance in June, providing further evidence that household spending remains sensitive to both economic conditions and changing seasonal demand.
Overall retail sales volumes declined by 0.5% during the month, in line with market expectations. Non-food sales volumes fell by 1.3%, driven primarily by a sharp 2.7% decline across textile, clothing and footwear stores. This was the sector’s largest monthly fall since May 2025.
The amount spent across physical stores and online channels also decreased during July, reflecting a broader slowdown following June’s strong performance.
According to the Office for National Statistics, July’s weakness in clothing sales was partly caused by retailers launching promotional campaigns earlier than usual. This encouraged consumers to bring purchases forward into June, leaving less demand during the following month.
The extreme summer heat also appears to have discouraged shoppers from visiting stores, although the overall picture was not entirely negative. Retail sales volumes still increased by 1.1% across the three months to July, suggesting the monthly decline may represent a temporary slowdown rather than a more severe deterioration in consumer spending.
However, the timing of the figures is less than ideal for the UK government. Chancellor John Healey is currently preparing his first Budget since Andy Burnham became Prime Minister, while simultaneously facing renewed pressure on the public finances.
The government unexpectedly borrowed £1.8 billion in July, despite the month typically benefiting from strong self-assessment tax receipts. Economists had expected the public finances to be broadly balanced, while the Office for Budget Responsibility had forecast a £500 million surplus.
Although tax receipts increased, government spending rose at a faster pace. Higher expenditure on social benefits, public services and staffing costs contributed to the shortfall, with borrowing during the first four months of the financial year reaching £56.7 billion. This was approximately £2.3 billion above the OBR’s forecast.
The combination of weaker retail activity, elevated inflation and higher-than-expected borrowing leaves the Chancellor with a difficult balancing act ahead of the Budget on 28 October.
Supporting households through the ongoing cost-of-living squeeze may require additional spending or tax reductions. However, weaker public finances limit the government’s room for manoeuvre, particularly while it remains committed to existing fiscal rules.
For sterling, the figures present a mixed outlook. Softer consumer activity could weigh on expectations for UK economic growth, while concerns over government borrowing may place further pressure on gilt markets. With inflation also having risen to 2.9% in July, policymakers face the increasingly difficult task of supporting growth without adding to inflationary or fiscal pressures.
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