Consumers face price increases next year as budget costs decline, retailers warn

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

The British Retail Consortium said there is “little hope of prices rising” in 2025, following recent Budget announcements that will increase costs for UK retailers by around £7bn 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 next April.

Employers’ National Insurance rates will also increase from their current tax of 13.8 per cent on wages over £9,100 to 15 per cent on wages over £5,000.

In addition, retailers will enjoy less generous business rates relief, which will be reduced from 75 per cent to 40 per cent, up to a limit of £110,000 per business.

Helen Dickinson, chief executive of the BRC, said her organization and retail finance chiefs were predicting food prices will grow by 4.2 per cent in the second half of this year.

He added: “The government can still take steps to mitigate these price pressures, and must ensure that the proposed reforms to business rates do not result in any shops paying more rates than they already pay.”

Store prices fell more rapidly in December, falling 1 percent compared to 0.6 percent the previous month.

Food inflation remained at 1.8 percent, its lowest rate in three years, while non-food sector deflation fell again to 2.4 percent.

Dickinson said retailers significantly reduced prices ahead of Black Friday to try to offset lower demand earlier in the year.

However, the BRC noted that inflation figures were affected by the delay of Black Friday in 2024. The popular discount period was November 29, after having been November 24 the previous year.

Mike Watkins, head of retail and business insight at NielsenIQ, said: “During December, shoppers benefited from both lower inflation than last year and deeper discounts, as both food and non-food retailers were eager to boost 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 coming months.”

In mid-November, the chief executives of dozens of prominent British retailers signed a letter warning that the budget measures would lead to job cuts, price increases and store closures.

They suggested the government delay the implementation of new taxes on packaging, which will come into force from October 2025, and stagger the introduction of the lower NI income threshold.

Clive Black, analyst at Shore Capital, said: “For the food system, from farm to restaurant, budget inflationary pressures are even more serious, as people count and corporate margin structures mean less ability to absorb such The State instilled cost pressures while avoiding financial stress.’