Q3: Business sentiment in Retail & Wholesale rises but remains weak as firms remain cautious about the outlook.
- Retail & Wholesale confidence rose from -14.0 in Q2 2026 to -3.7 but remained negative for an eighth consecutive quarter and below the UK average.
- Domestic sales growth picked up to its fastest rate since Q3 2023, though companies expect a slight easing over the coming year.
- Labour costs and geopolitical risk were the most widely cited rising challenges, followed by the tax burden and regulatory requirements.
- Employment growth held up and pay growth strengthened, but businesses have scaled back their hiring plans for the year ahead.
- Input cost and selling price inflation picked up, but companies predict both will ease over the next 12 months.
- Capital investment growth was steady, while R&D expansion continued to lag historical trends and the UK average.
Business confidence in the Retail & Wholesale sector
Sentiment in the Retail & Wholesale sector improved markedly, rising from -14.0 in the previous quarter to -3.7 in Q3 2026, its highest score since Q3 2024. However, the sector remained in negative territory for the eighth consecutive quarter, below both its historical average (-0.7) and the national average (-0.5).
Retail & Wholesale businesses showed some resilience this quarter, although trading conditions remained challenging. Meanwhile, the Bank of England Agents' summary of business conditions for September 2026 noted that consumer spending growth remains moderate and mainly price driven, with shoppers trading down to budget brands. BCM shows that alongside geopolitical risk, labour costs, regulation and the tax burden remain prominent challenges weighing on confidence in the sector.
Domestic sales growth and customer demand
Retail & Wholesale companies reported that annual domestic sales growth picked up to 4.0% in Q3 2026, the fastest rate since Q3 2023. This was ahead of both the national average (3.6%) and the sector's historical norm (3.0%), although the improvement could in part reflect higher prices rather than stronger underlying demand. Businesses have revised their outlook for the year ahead down significantly from the previous quarter and now expect growth to ease slightly over the coming year to 3.8%, lagging the UK projection (4.3%).
Business challenges
Labour costs and geopolitical risk were jointly the most widely cited rising challenges among Retail & Wholesale businesses in Q3 2026, each reported by 64% of companies. The sector's comparatively large dependence on typically lower-paid roles means Retail & Wholesale companies have been more exposed to higher employment costs in recent quarters. As a result, labour cost concerns were well above the national average (53%) and second only to the proportion found in the Transport & Storage sector (67%).
With US-Iran hostilities continuing through the survey period, geopolitical risk remained a key concern, although the share of businesses citing the issue eased to 64%, still above the UK average (58%). Energy costs were reported as a growing challenge by 47% of companies, down from 51% last quarter and broadly in line with the national average (45%), though the survey results may not fully capture the spike in wholesale gas and crude oil prices in September.
Regulatory requirements and the tax burden have also become more prominent concerns. The tax burden was cited as a rising challenge by 52% of companies, up from 47% last quarter, which is more than twice the sector's historical norm (20%) and above the UK average (41%). Reports of regulatory challenges rose sharply to 50% in Q3 2026, well above the sector's historical norm (36%) and the national average (46%).
Customer demand concerns remain significant in Retail & Wholesale. The issue was cited as a rising challenge by 41% of businesses in the sector, broadly unchanged from the previous quarter and slightly below the sector's historical average (44%), but more widely reported than across the UK economy (36%).
Meanwhile, the share of Retail & Wholesale businesses reporting transport problems rose further, from 26% to 39%, the highest since Q3 2022 and well above both the sector's historical norm (22%) and the UK average (18%), likely to reflect continued supply chain disruption linked to the Strait of Hormuz.
In contrast, competition in the marketplace dropped to 35% and below the sector's historical norm (40%) and is now broadly in line with the UK average (34%).
Labour market
Retail & Wholesale businesses continued to expand headcount in Q3 2026, despite labour market demand cooling across most other sectors. Annual employment growth eased slightly to 1.1%, above both the national rate (0.7%) and the sector's historical norm (0.9%). However, businesses have scaled back their hiring plans, expecting employment to rise by just 0.4% over the next 12 months, the weakest projection of any sector, and much lower than the UK average expectation (1.5%).
Annual salary growth in the Retail & Wholesale sector picked up to 3.1% in Q3 2026 from 2.4% in the previous quarter, above both the 2.8% rise recorded nationally and the sector's historical norm (2.0%). Companies expect wage inflation to moderate over the next 12 months to 2.7%, broadly in line with the 2.6% rise expected nationally.
Input and selling prices, and profits growth
Input price inflation in the Retail & Wholesale sector picked up to 3.8% in Q3 2026, broadly in line with the 3.9% rise observed across the UK and well above the sector's historical norm (2.7%). Businesses expect cost pressures to ease markedly over the coming year, forecasting input price inflation of 2.2%, the lowest of any sector and below the UK projection (2.9%).
Retail & Wholesale companies passed some of these higher costs on to customers, with annual selling price inflation rising to 2.7%, above the 2.2% national rate. Businesses expect price growth to slow over the next 12 months to 1.8%, their lowest projection since Q2 2024 and below the 2.1% growth projected across the UK, though this outlook is still stronger than the sector's historical norm (1.6%).
With cost and wage pressures intensifying, annual profits growth in the Retail & Wholesale sector slowed to 2.8% in Q3 2026, lagging the UK average rise of 3.3% but still above the sector's historical norm (2.4%). Companies have also scaled back their expectations for the year ahead, projecting profits growth of 3.1%, down from the 4.2% predicted last quarter and below the 4.5% rise expected nationally.
Investment
Annual capital investment growth was unchanged at 2.0% in Q3 2026, remaining above the sector's historical norm (1.7%) but below the 2.3% rate recorded nationally. However, Retail & Wholesale businesses have sharply reduced their investment plans, expecting capital investment to rise by just 0.7% over the coming year, This is their weakest projection since Q1 2024 and notably lower than the 2.0% rise anticipated across the UK.
R&D growth remains subdued, slowing to 0.6% in the year to Q3 2026, the weakest rate since Q4 2024, and lagging both the historical norm (1.4%) and the UK average (2.3%). Companies plan to increase R&D spending over the year ahead, with a forecast rise of 1.4%, the strongest projection since Q4 2022, though this remains below the UK forecast (1.9%).
UK results
The UK Business Confidence Index rebounded to -0.5, from -14.6 in Q2, but remained negative for a seventh consecutive quarter. Current sales and profits proved resilient, but firms downgraded their expectations for both over the next 12 months. Geopolitical risk remained the leading challenge, while elevated input and labour costs continued to put pressure on margins. Energy costs, regulations and the tax burden remain significant challenges. The rebound was broad but uneven: confidence rose in every sector, IT & Communications was the most positive, while Property and Construction remained deeply negative.
The latest quarterly findings are based on the period 13 July to 21 September 2026.