Consumers will face price increases next year due to the sharp budget costs, retailers warn
- Budget changes could increase costs for UK retailers by around £7 billion this year
- Retail prices fell by 1% in December, compared to 0.6% the month before
Shoppers enjoyed lower prices in the final months of 2024, but retail experts have warned that price increases will be inevitable this year.
The British Retail Consortium said there is ‘little hope that prices will rise elsewhere in 2025’, following recent budget announcements that will increase costs for UK retailers by an estimated £7 billion this year.
Chancellor Rachel Reeves announced at the end of October that the national living wage would rise by 77p to £12.21 an hour from April next year.
Employer National Insurance rates will also rise from the current levy of 13.8 per cent on wages above £9,100 to 15 per cent on salaries above £5,000.
In addition, retailers will benefit from a less generous reduction in business rates, which will be reduced from 75 percent to 40 percent, capped at £110,000 per business.
Helen Dickinson, the BRC’s chief executive, said her organization’s bosses and the financial retail industry were predicting food prices will rise 4.2 percent in the second half of this year.
More expensive: The BRC expects recent budget announcements to increase costs for UK retailers by an estimated £7 billion this year
She added: ‘The government can still take steps to ease these price pressures, and it must ensure that the proposed business rates reforms do not lead to shops paying more rates than they already do.’
Retail prices fell faster in December, falling 1 percent, compared to 0.6 percent the month before.
Food inflation remained at 1.8 percent, the lowest level in three years, while non-food deflation fell further to 2.4 percent.
Dickinson said retailers have significantly reduced prices ahead of Black Friday to try to offset weaker demand earlier this year.
However, the BRC pointed out that inflation figures were affected by the later timing of Black Friday in 2024. The popular discount period was on November 29, while the previous year it was on November 24.
Mike Watkins, head of retailer and business insight at NielsenIQ, said: ‘In December, shoppers benefited from both lower inflation than last year and deeper discounts as both food and non-food retailers were keen to increase sales after a slow start to the quarter.
‘However, higher household costs are unlikely to disappear quickly, so retailers will need to carefully manage any inflationary pressures in the coming months.’
In mid-November, the CEOs of dozens of leading British retailers signed a letter warning that the budget measures would lead to job losses, higher prices and store closures.
They suggested that the Government should delay the introduction of new packaging charges, due to be introduced from October 2025, and phase in the introduction of the lower NI revenue threshold.
Clive Black, analyst at Shore Capital, said: ‘For the food system, from farm to cafe fork, the inflationary pressures of the budget are all the more severe because people count and corporate margin structures mean there is less room for maneuver is to deal with such problems. state-induced cost pressures, while avoiding financial stress.”
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