The Retail Note - Xmas 2025: narrative vs numbers

Key Messages

• Xmas far stronger than reported
• Mismatch between the narrative and the actual numbers
• YoY retail sales values +4.9% in Dec
• YoY retail sales volumes +3.1% in Dec
• MoM volumes rebound +0.4% in Dec…
• …yet ONS major on questionable QoQ volume decline of -0.3%
• Q4 volumes actually up +3.0% on previous year
• Significant/overdue upwards revision on the grocery figures
• Supermarket spend up +5.1% in Dec, vols. +1.3%
• Non-food spend +2.9%, vols +2.6%
• Mixed picture across non-food sub-sector
• Strong Xmas for fashion, books and jewellery
• Soft demand for textiles, cosmetics and sports & toys
• A number of categories deflationary, reflecting hefty discounting
• Online penetration rises to 28.3%
• 2025 FY: values +3.4%, volumes +1.8%
• Best year for ‘real’ growth since 2021 post-COVID bounce back
• Retail sales continue to outperform GDP.

 Christmas 2025: ‘decent’ we said, ‘drab’ said the British Retail Consortium (BRC). We now have the official figures from the ONS and I would upgrade our ‘decent’ to ‘way better than decent’. Surely the ONS couldn’t put a negative spin on this? Unbelievably, they have managed to do just that, thereby sending out a very misleading message to the media (who, thankfully, don’t really seem to care).

How did the ONS do this? Firstly, by not acknowledging the December figures in isolation. Secondly, by focusing squarely on volume growth. Thirdly, by majoring on meaningless quarter-on-quarter comparisons. And fourthly, by mercilessly seasonally-adjusting the numbers in a vain attempt to placate the economist community.

Facts overriding fiction

Year-on-year (YoY) retail sales values (exc fuel) grew by +4.9% in December. Way higher than any prediction, including our own (+2.5%), which now seems decidedly conservative. More positively still, YoY retail sales volumes (exc fuel) grew by +3.1% in December (vs. KF prediction of +1.0%). Obviously, loads of devil in the detail, but these are headline numbers that exceeded every forecast.

Over the extended Q4 period, performance was broadly similar. Between October and December, retail sales values (exc fuel) were up YoY by +4.8%, while volumes were ahead by +3.0% (vs. KF predictions of values +3.0%, volumes +1.5%).

Our predictions were considerably bolder than most, yet undercooked the outturn. But our other spend predictions were very much on the money (pun intended). Total spend in December was £56.5bn vs our projection of ca. £57bn and £137bn in Q4 as a whole vs our projection of ca. £136bn.

And this remains the central message: however the numbers are ‘seasonally adjusted’ or otherwise manipulated, the UK consumer still spent very freely over the festive period and there was certainly enough demand to go round. It was not a miserable Christmas for most retailers by any stretch – and certainly not ‘drab’.

The misleading narrative

Contrast all this with the ONS headline of ‘Retail sales fell in the three months to December 2025, according to our first estimate’. Unimaginative, underwhelming - and downright misleading.

The qualifying narrative to this: ‘The quantity of goods bought (volume) in retail sales is estimated to have fallen by -0.3% in Quarter 4 (Oct to Dec) 2025 compared with Quarter 3 (July to Sept) 2025. Supermarkets and non-store retailers' sales both fell following a strong Quarter 3 2025.’

Where to start the dissection? Probably best with the word ‘estimated’. The ONS notoriously manipulates the raw figures to reflect what it thinks reflects an economic reality. This usually comes under the banner of ‘seasonal adjustment’. But the folly of this is staggering: ‘Seasonally adjusted estimates are derived by estimating and removing calendar effects (for example, Easter moving between March and April) and seasonal effects (for example, increased spending in December because of Christmas) from the non-seasonally adjusted estimates.’ So, unbelievably, Christmas is hypothetically expunged from the December figures, the economic reality clearly not reflecting the retail one (and presumably, economists don’t celebrate Christmas like the rest of us?)

The seasonality of retailing always throws up these challenges. Which is why month-on-month (MoM) and quarter-on-quarter (QoQ) comparisons are always deeply flawed and pale into insignificance versus year-on-year (YoY) ones. The ONS leading on Q4 sales volumes being down -0.3% on Q3 is frankly ridiculous and bears no relation to retail reality. The raw, non-doctored Pounds Data fully bears this out. Q3 volumes were £114bn, Q4 £132bn. So, rather than decline by -0.3%, volumes actually increased by +15% in Q4. That is the reality.

Contrast this quarterly narrative with the far more meaningful YoY picture, which requires no seasonal adjustment. Q1 volumes +0.7%, Q2 +1.3%, Q3 +2.4% and Q4 +3.0%. All positive and with accelerating growth as the year unfolded. Dare I say, as good as we could have dreamed of?

The second part of the ONS narrative was thus: ‘Retail sales volumes are estimated to have risen by +0.4% in December 2025, following a fall of -0.1% in November 2025 (unrevised from our previous publication) and a fall of -0.8% in October 2025 (revised up from a -0.9% fall in our previous publication). Non-store retailers' volumes rose in December 2025, following falls in October and November, with online jewellers reporting that demand for precious metals picked up in December.’

Notwithstanding the aforementioned adjustments within this data too, the ONS could have led with a more positive headline on a positive outturn for December and that Christmas was far from a disaster – but why go for a positive narrative when you can go for a negative?

Performance by sector

The usual weird and wonderful contrasts between individual retail sub-sectors.

A key driver behind the strong overall numbers was the performance of supermarkets. Grocery sales values increased YoY by +5.1% in December. More surprisingly, grocery volumes grew by +1.3%. This marked a significant turnaround on the ONS data from previous months, which had hitherto looked suspiciously underweight.

The ONS duly acknowledged this, pointing to: ‘1. revisions to seasonal adjustment factors, which have been reviewed and re-estimated 2. late responses to survey returns replacing imputations, or revisions to original returns. The number of revisions in this release is higher than usual because some large retailers, mainly within the food sector, updated their returns over the past 12 months.’ In other words, the ONS got better data from the major supermarkets and this lead to major upwards adjustment to the grocery numbers. We can be guess which if the grocers is on the naughty step…

Positive the grocery figures may be, but are they fully credible? The implied figure for inflation of 3.8% is – and surely a worry for the Chancellor. But the value figure of +5.1% is considerably higher than Kantar’s Worldpanel’s (+3.8%) and the BRC’s (+3.2%). Grocery volumes of +1.3%? I’d like to believe it, but my instinct is that they are scarcely in positive growth territory, if at all.

More nuance still (and a few concerns) on the non-food side. Total non-food sales grew by a more modest (but credible) +2.9%, with volumes ahead by +2.6%. The implied level of inflation of non-food of just 0.3% may make better reading for the Chancellor, but less positively, probably also points to an aggressive pricing arena on the high street, with retailers desperately discounting and promoting to drive sales. Good for consumers, less good for retailers’ bottom lines.

Indeed, some sectors were actually deflationary in December, including PCs and Telecomms (-5.5%), Carpets (-3.0%), Electricals (-2.5%), Music & Video (-2.4%), Footwear (-1.5%), Sports & Toys (-1.4%), Furniture (-0.3%) and DIY (-0.2%). This took some of the gloss of seemingly strong headline spend growth in many of these categories (e.g. PCs & Telecomms +18.6%, Furniture +12.8%).

Demand in other categories was far more robust, many achieving the holy trinity of value and volume growth, despite being inflationary. This included Books & Magazines (values +12.7%, volumes +7.5%, inflation +5.2%), Jewellery (+9.6%, +3.1%, +6.5%) and Clothing (+8.6%, +7.3%, +1.3%). In contrast, demand was exceedingly soft for Textiles (-49.2%, -49.4%), and perhaps more surprisingly, Cosmetics (-14.9%, -15.8%) and Sports & Toys (-3.4%, -2.0%).

In December, online spend grew YoY by +11.1% (+1.8% MoM, despite Black Friday). For Q4 as a whole, online grew by +8.4% YoY (+2.1% MoM), again largely as a result on revision to the grocery numbers. Overall online penetration rose from 28.0% in November to 28.3% in December.

For a more detailed breakdown, please refer to accompanying Retail Sales Dashboard.

Final thoughts

Quite simply: an end to misrepresentation of the data and, much more importantly, the narrative must change. A focus on pure year-on-year comparisons rather than fudged seasonal adjustments. And a more balanced presentation of the underlying story, rather than a perennial default to doom and gloom.

Of course, with the December figures, we also get the outturn for the full-year (more detailed analysis of that to come in next week’s Retail Note). But the headline facts are thus: retail sales values grew by +3.4% in 2025, above forecast (KF +2.5%). And volumes grew by +1.8%, the best year of ‘real’ growth since the 2021 post COVID bounce back. And retail sales outstripped GDP. Again.

£137bn of spend in Q4, £57bn in December alone. A very ‘drab’ Christmas it was not.