What is the 2025 outlook for UK retail stocks? By Investing.com

Investing.com – It was a tough start to 2025 for UK retail stocks, with concerns that the UK budget is straining for businesses and consumers.Data on Friday showed UK retail sales fell in December despite expectations of a jump over the holiday period.

In the UK, consumers pulled back on spending as retail sales fell 0.3% in December, well below consensus growth of 0.4%.However, Jefferies analysts were “cautiously optimistic” for the rest of the year.

Analysts at Jefferies said in a “Real-Time Retail Summary” note that “New Year’s shopping has seen a slower trend.”

Major retailers love Greggs (LON: ), Dunelm, JD (NASDAQ: ) Sports, M&S Clothing/Home and B&M missed expectations in either sales or profit.

Although these omissions did not materially affect earnings estimates, the market reaction was notable.

The firm said softer sales trends in Q4 2024 were reflected in its retail trend barometers, which showed an average run rate of -4% through 2023, slowing to -9% in Q3 2024 and further declining to -13%: the last quarter of 2024.

Looking ahead, Jeffries maintains a cautiously optimistic outlook for 2025.

“While recognizing that the sector does have challenges to contend with (opex/NIC, consumer confidence), particularly in the near term, we believe the positive demand backdrop and cyclically elevated savings ratio should support a more positive than expected 2025 : market”.

Jeffries also highlighted the valuation aspect, noting that the sector is trading at a multiple of roughly 11 times, a 15% discount to its long-term average.

They recommend “selectively increasing exposure” and listed their top picks for 2025 as Premier Foods (LON:), Frasers and DFS.