Recession fears grip UK as economy slows – retailers and consumers brace for ‘dark days ahead’

With rising costs and Government policies adding pressure, retailers and consumers throughout Britain brace for a challenging start to 2025.

Consumer confidence in Britain has fallen sharply to -34 in January, down from -27 in December, as economic concerns deepen across the nation, new research has shown.

The downturn comes as major retailers face unprecedented challenges, with the UK potentially already entering a recession, according to a warning from Shore Capital.

They suggest the economy could be shrinking due to policies from Labour that have hurt growth. Consumer confidence has also dropped to its lowest point in a year, with people fearing job losses after the recent Budget.

Clive Black from Shore Capital said the UK might be in a “technical recession,” which happens when GDP shrinks for two consecutive quarters.

He added: “The Prime Minister and the Chancellor of the Exchequer have notably damaged the momentum of the UK economy since they came to power through their flawed messaging and policy announcements.

“The relief that the rotten Tories ‘went’ in 2024 has been replaced by a sense of extended agony, which is especially draining for participants in the UK economy.”

Consumer confidence in Britain has fallen sharply to -34 in January, down from -27 in December, especially as unemployment rates have risen.

Retailers are facing an estimated £7billion surge in operational costs due to Budget changes including higher employer national insurance contributions and a new packaging levy.

Many businesses are now considering implementing price increases and potential job reductions in response to these rising costs.

As a result of this, the unemployment rate increased to 4.4 per cent in the three months to November, up from 4.3 per cent in the three months to October. The number of workers on payrolls dropped by the most since the peak of the pandemic, too – according to the ONS.

According to Robinhood UK analyst Dan Lane: “There’s a real worry that slowing growth in UK disposable incomes could have an outsized impact on lower-income households.”

The financial strain comes at a particularly challenging time, with retailers already grappling with reduced consumer spending due to high inflation and increased monthly budgets.

These mounting costs are putting pressure on already tight margins across the retail sector as Britons have less money to spend and save.

Consumer confidence is dropping, especially in stores that sell non-food items, which are facing lower spending and bad weather. Primark’s parent company, Associated British Foods, has lowered its sales growth prediction for 2025 after seeing a four per cent drop in UK sales from mid-September to January 4.

In the UK and Ireland, which make up 45 per cent of Primark’s total sales, sales fell by 6.4 per cent whereas US sales were up by 17 per cent and growth in parts of Europe.

Although sales were a bit better in December, the fall season was weak due to mild weather and low consumer confidence, ABF said.

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Britain is also projected to face more frequent recessions in the coming years, with downturns potentially occurring every five years instead of the historical eight-year pattern.

Bloomberg Economics’ analysis reveals the UK’s trend growth rate has halved from 2.5 per cent to just 1.2 per cent, making the economy more vulnerable to shocks.

Dan Hanson, the chief UK economist said: “There are good reasons to think technical recessions will be more frequent in coming years than in the past.”

However, Hanson noted these more frequent technical recessions are unlikely to result in major economic downturns with surging unemployment.

GfK’s Consumer Confidence Index fell by five points to minus 22 in January, with all measures that make up the overall score down on last month.

Neil Bellamy, consumer insights director at GfK, said: “These figures underline that consumers are losing confidence in the UK’s economic prospects.”

She warned the sharp increase is “unwelcome because it’s another sign that people see dark days ahead and are therefore thinking of putting money aside for safety.”

Helen Dickinson, BRC Chief Executive noted the public mood, stating: “As the Government warns of tough times ahead, it is little surprise that the public has caught the January blues.”

The pessimism is most pronounced among older generations, with two-thirds of Boomers (ages 60-78) expecting an economic downturn.

Labour Chancellor Rachel Reeves, speaking at Davos, emphasised the need to “turbocharge the economy” through infrastructure projects and planning decisions.

Reeves highlighted historical issues, noting: “That’s been the problem in Britain for a long time. That when there was a choice between something that would grow the economy and sort of anything else, anything else always won.”