Retail Sales Fall 0.5% in July; Consumer Confidence at Two-Year High

UK retail sales volumes dropped in July after two consecutive months of growth, while consumer confidence climbed to its highest level since early 2022, a split that paints a picture of cautious optimism rather than a full rebound.

Sales fell 0.5% month-on-month, the Office for National Statistics said. That followed a 0.7% increase in June and a 1.3% rise in May. Over the three months to July, volumes were up 1.1% across every main sector except automotive fuel.

The July decline looked more like a timing effect than a collapse in demand, said Hai-Ly Nguyen, an associate partner at McKinsey. “The heatwave suppressed high-street footfall and cooled appetite for big-ticket household purchases, including furniture,” she said. “Food held up with a 0.5% rise, helped by the World Cup’s final week and summer gatherings.”

Nguyen noted that online retail’s share of sales slipped to 28.3% in July, still structurally elevated. In categories such as apparel and beauty, consumers increasingly use AI tools to compare choices before buying, making visibility upstream of checkout as important as in-store presence, she said.

The GFK Consumer Confidence Index for August rose three points to minus 14, its highest since early 2022. In April the index stood at minus 25. Neil Bellamy, GFK’s consumer insights director, said sentiment had “continued to improve this summer.”

Nicholas Found, head of commercial content at Retail Economics, said the July figures showed customers were still shopping selectively. “Sunshine, England’s World Cup run and a calmer economic backdrop lifted the national mood in July,” he said. “That optimism translated into selective spending rather than a broad retail recovery. Consumers prioritised experiences, summer essentials and smaller indulgences such as beauty.”

Found added that shoppers remained heavily discount-focused. “Promotions remain deeply embedded in shopping behaviour, showing consumers have not abandoned the value discipline built up through the cost-of-living crisis.”

Deann Evans, managing director for EMEA at Shopify, said the data suggested consumers were making purchases early to secure the best deals. “Our data also revealed consumers are already thinking about autumn fashion, perhaps in an effort to beat the rush and capitalise on the best discounts,” she said. “It is a reminder that shoppers like to look ahead and secure the best deals.”

Jacyn Heavens at point-of-sale provider Epos Now said the timing of promotions mattered. “We saw this play out in July, when clothing retailers who pulled their promotions forward into June ended up with weaker sales in July as a result, a clear example of how timing decisions can shift demand from one month to the next rather than create it.”

Richard Nolan, Epos Now’s chief operating officer, cautioned against reading too much into the confidence improvement. “With the index still in negative territory, businesses shouldn’t mistake improving sentiment for a complete turnaround in sales,” he said. “Consumers may be feeling more optimistic, they’re likely still selective.”

Taken together, the ONS and GFK figures suggest consumer optimism is recovering. That has not yet translated into a sustained increase in discretionary spending. July’s dip appears tied to the heatwave and early promotions, not a weakening of confidence.

Found said the second half now looked finely balanced. “Energy-driven inflation has accelerated again and could quickly test household optimism. In a market where growth remains scarce, retailers need to combine sharp value perception with relevance to drive market-share gains.” He added that the new government’s ambition to revive Britain’s high streets would require stronger household spending power and a cost base that gave retailers confidence to invest.