Consumers face value hikes subsequent yr as Budget prices chew, retailers warn

Shoppers enjoyed lower prices in the final months of 2024, but retail experts have warned price hikes will be inevitable this year. 

The British Retail Consortium said there is ‘little hope of prices going anywhere but up’ in 2025, following recent Budget announcements that will raise costs for UK retailers by an estimated £7billion this year.

Chancellor Rachel Reeves announced in late October that the National Living Wage would increase by 77p to £12.21 per hour from next April.

Employers’ National Insurance rates will also rise from its current 13.8 per cent levy on wages above £9,100 to 15 per cent on salaries exceeding £5,000.

In addition, retailers will enjoy less generous business rates relief, which is being cut from 75 per cent to 40 per cent, up to a £110,000 cap per company.

Helen Dickinson, the BRC’s chief executive, said her organisation and retail finance bosses were predicting food prices will grow by 4.2 per cent in the latter half of this year.

More expensive: The BRC expects the recent Budget announcements will raise costs for UK retailers by an estimated £7billion this year

She added: ‘Government can still take steps to mitigate these price pressures, and it must ensure that its proposed reforms to business rates do not result in any stores paying more in rates than they do already.’

Shop prices shrank faster in December, falling by 1 per cent compared to 0.6 per cent the previous month.

Food inflation remained at 1.8 per cent, its lowest rate for three years, while non-food deflation fell further to 2.4 per cent.

Dickinson said retailers slashed prices significantly ahead of Black Friday to try and compensate for weaker demand earlier in the year.

However, the BRC pointed out that the inflation figures were affected by the later timing of Black Friday in 2024. The popular discounting period was on 29 November, having been on 24 November the previous year.

Mike Watkins, head of retailer and business insight at NielsenIQ, said: ‘During December, shoppers benefited from both lower inflation than last year and bigger discounts as both food and non-food retailers were keen to drive sales after a slow start to the quarter.

‘However, higher household costs are unlikely to dissipate anytime soon, so retailers will need to carefully manage any inflationary pressure in the months ahead.’

In mid-November, chief executives from dozens of prominent British retailers signed a letter warning that the Budget measures would cause job cuts, increased prices and store closures.

They suggested the government delay implementing new packaging levies, which are due to come in from October 2025, and phase the introduction of the lower NI earnings threshold.

Clive Black, an analyst at Shore Capital, said: ‘For the food system, from farm to the café fork, the inflationary pressures from the Budget are all the more serious, as the people count and business margin structures mean less slack to absorb such state infused cost pressures whilst avoiding financial stress.’