Retail Sector Anticipates Price Increases and Calls for Tax Relief
The UK retail industry is expressing concerns over a significant spike in operational costs, which could lead to a marked increase in consumer prices throughout the upcoming year. According to the British Retail Consortium (BRC), food prices are projected to escalate by an average of 4.2% in the latter half of the year, with non-food items also expected to follow suit, aligning with the current inflation rate of 2.6%. Retailers are bracing for an estimated £7 billion surge in costs in 2025, largely due to forthcoming increases in employers’ national insurance contributions, the rise in the national living wage, and newly introduced packaging levies.
BRC Chief Executive Helen Dickinson articulated, “As retailers grapple with these £7 billion in heightened costs, there is limited hope for price stabilization.” She urged the government to act to alleviate these financial pressures, stressing the importance of ensuring that any reforms to business rates do not inadvertently increase costs for retailers. In light of these pressures, the fashion and home goods retailer Next recently announced plans to raise its prices by 1% this year, attributing this decision to a substantial £67 million hike in wage expenses that they anticipate will have a ripple effect throughout the economy.
Despite a slight decline in prices during early December—where retail prices for both food and non-food categories dropped by 1%, largely driven by Black Friday promotions—recent data indicates a troubling trend. The BRC-NielsenIQ shop price index noted that food prices in December were 1.8% higher compared to November, while prices for non-food items like clothing and home goods saw a notable 2.4% decrease, marking the most significant deflation since April 2021.
Such temporary markdowns, however, may obscure the more persistent inflationary trends beneath the surface, as highlighted by the BRC. Consumers found some respite from inflationary pressures in December relative to the previous year, but analysts, such as Mike Watkins from NielsenIQ, caution that household expenses may continue to strain family budgets in the near future. Watkins observed, “With elevated household costs persisting, retailers must strategically navigate upcoming inflation pressures.” As the year progressed into early 2024, the pressures from the cost of living crisis began to soften; however, inflation rates have risen steadily since July, driven predominantly by increased prices for confectionery, skincare products, and beverages. This has propelled festive grocery expenditures to an unprecedented average of £460, according to Kantar analysts.
Kantar’s figures indicate that food price inflation surged to 3.7% in December—the highest level observed since March. Sales figures for the three months leading up to December rose across major supermarket chains, including Tesco, Sainsbury’s, Lidl, and Marks & Spencer. Retailers like Tesco and M&S are slated to disclose their Christmas trading results imminently, and market analysts will be closely monitoring whether these reports hint at increased prices in response to rising taxes.
Clive Black of Shore Capital posited that food inflation is likely to escalate in the UK through 2025, echoing the predictions of the BRC. He noted, “Despite the mounting costs that retailers face, supermarkets will strive to be seen as champions for consumers,” anticipating that competition within the retail space will remain fierce.
