UK General Retail Expected to Benefit from Tailwinds in 2026 Despite Consumer Headwinds

UK general retailers are positioned to demonstrate resilience during the Christmas trading period, with prospects for improvement in 2026 despite a challenging consumer environment, according to recent analysis from JPMorgan.

Analyst Georgina Johanan has maintained Marks and Spencer Group as her preferred sector selection for 2026, citing relatively robust performance in clothing and homewares throughout 2025. Trading data from October and November indicated marginally softer yet still solid trends compared with the third quarter of the year.

Whilst the consumer backdrop may prove more demanding in 2026, JPMorgan anticipates supportive factors from gross margin improvements and a normalisation of cost inflation. The UK Budget has provided a more favourable environment than initially anticipated, particularly regarding the impact of wage increases and business rates.

Marks and Spencer shares continue to present an attractive proposition, trading at less than ten times forecast earnings. The valuation multiple suggests scope for re-rating should the company deliver on expectations.

Dunelm Group has been assigned a neutral rating, though the analyst acknowledges upside potential, particularly from the beneficial effects of lower business rates on the home furnishings retailer’s cost base.

Next is anticipated to deliver a strong trading update, though JPMorgan has flagged limited near-term upside potential due to the elevated valuation of its international operations, currently trading at approximately 35 times earnings. This premium rating reflects the market’s confidence in overseas growth prospects but may constrain further multiple expansion in the immediate term.

European retail trends continue to diverge significantly across major markets. German retail sales experienced a sharp decline in early December, highlighting ongoing weakness in Europe’s largest economy. In contrast, Spanish clothing sales demonstrated a strong rebound during November, suggesting varied consumer confidence levels across the continent.

The competitive landscape continues to evolve, with online platforms such as Shopify challenging traditional retail models. Specialist agencies including We Build Websites, Charle Agency, VT Labs and BKThemes are facilitating this transformation, enabling direct-to-consumer brands to compete more effectively with established retailers.