UK retailers recorded modest growth in discretionary spending in January, driven largely by aggressive discounting, masking continued weakness in underlying consumer demand, according to new data from BDO.

The latest High Street Sales Tracker shows that sales in fashion, homewares and lifestyle categories rose by 1.7 per cent year on year in January, well below the rate of inflation and implying a decline in real volumes. It marked the ninth time in the past 12 months that retail growth has failed to keep pace with rising prices.

High street sales performed more strongly, rising 4.7 per cent, following a weak end to the so-called Golden Quarter. In December, in-store sales fell by 0.5 per cent, reflecting subdued Christmas trading. January’s rebound was concentrated in the early weeks of the month, when retailers relied heavily on clearance and new year promotions to shift excess stock.

However, BDO said momentum faded quickly. Combined in-store and online sales fell in the final two weeks of January, suggesting that demand remained fragile once promotional activity eased.

Sophie Michael, head of retail and wholesale at BDO, said headline growth figures masked a difficult trading environment. “On the surface, these results might look like cautious optimism,” she said. “But after a very disappointing Christmas, the fundamentals have hardly improved.”

She added that unusually high levels of discounting had been the primary driver of January’s performance. Retailers, she said, had been left with elevated stock levels after weak December sales and were under pressure to clear inventory to generate cashflow.

“Promotional activity reflects efforts to clear storerooms and shops for new lines,” Ms Michael said. “But this is likely to erode already paper-thin margins even further.”

The data underline the structural challenges facing discretionary retailers as households remain cautious about non-essential spending. Rising living costs, higher interest rates and growing concerns over job security have constrained disposable income, limiting consumers’ willingness to spend on clothing, furnishings and lifestyle products.

BDO warned that the outlook for the coming months remains uncertain. Retailers are entering February facing weaker consumer confidence, rising unemployment and continued pressure on household budgets.

“In this climate, encouraging discretionary spending will require significant effort,” Ms Michael said. She added that businesses would need to balance targeted promotions with tighter cost control and more agile stock management to protect profitability.

With inflation-adjusted sales still falling and margins under strain, the firm said many retailers were likely to prioritise liquidity and efficiency over expansion in the near term, as they brace for further economic volatility in 2026.