UK retailers are preparing to grapple with a projected £7bn ($8.59bn) surge in costs in 2025 due to the budget's impact, contributing to an expectation of rising retail prices.

This caution about upcoming challenges comes from British Retail Consortium (BRC) chief executive Helen Dickinson, who noted: “As retailers battle the £7bn of increased costs in 2025 from the budget, including higher employer National Insurance, National Living Wage, and new packaging levies, there is little hope of prices going anywhere but up. Modelling by the BRC and retail CFOs suggest food prices will rise by an average of 4.2% in the latter half of the year, while non-food will return firmly to inflation. 

“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.”  

Data from the BRC and NielsenIQ suggests shop price deflation in December was recorded at 1.0%, a slight uptick from the previous month’s deflation of 0.6%.  

This rate surpasses the three-month average deflation of 0.8. The annual growth rate for shop prices remained at its lowest since August 2021.  

During the week of 1 and 7 December, the non-food sector experienced an intensification of deflation, reaching -2.4%, which is a slight decrease from -1.8% in the previous month and surpassing the three-month average rate of -2.1%. This level of deflation has not been observed since April 2021. 

Dickinson said: “Retailers discounted heavily for Black Friday this year as they attempted to make up for weaker sales earlier in the year. However, the later Black Friday timing brought many of the non-food discounts into the measurement period, making non-food prices look more deflationary than the underlying trend. With food inflation bottoming out at 1.8%, and many price pressures on the horizon, shop price deflation is likely to become a thing of the past.” 

In 2024, Black Friday falling towards the end of November resulted in the inclusion of the concluding days of Black Friday promotions (encompassing Cyber Monday) within the data captured between 1 and 7 December. Conversely, by December 2023, the period of Black Friday discounts had already elapsed.  

Consequently, this timing discrepancy is expected to present non-food prices as more deflationary than what might be indicative of the prevailing trend. 

Food inflation remained static at 1.8% in December, mirroring the three-month average and representing the lowest rate since December 2021. Fresh food inflation also held steady at 1.2%, just above its three-month average of 1.1% and marking its lowest point since November 2021. 

The ambient food category saw a marginal inflation increase to 2.8% in December from November’s 2.7%. This figure aligns with the three-month average and remains at its lowest since February 2022. 

NielsenIQ retailer and business insight head Mike Watkins 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.” 

Recent data from the BRC and Sensormatic revealed that there was a 2.2% reduction in overall foot traffic across the UK in 2024, compared to the previous year.  

By Just Style