Shops Warn Food Prices Will Continue to Rise

Shops Warn Food Prices Will Continue to Rise.

A retail lobby group has expressed that there is "little hope" for food prices to "decrease" in the latter half of 2025, following the changes outlined in the Budget. The British Retail Consortium (BRC) indicated that the increased costs associated with higher wages and adjustments to National Insurance tax, effective in April, will ultimately be transferred to consumers.

The BRC projected that food price inflation is expected to escalate from 1.8% last month to 4.2% in the second half of this year, with continued price increases anticipated for items such as vegetable oil, orange juice, butter, and coffee. Furthermore, it noted that overall shop prices, which have recently been on a decline, are likely to begin rising again.

In contrast, the Treasury stated that the independent Office for Budget Responsibility has predicted that food inflation will remain below 2.2% for this year.

Chancellor Rachel Reeves has previously said "the right thing to do was to ask businesses and the wealthiest in our country to pay a bit more".

In her October Budget, Reeves announced that the National Living Wage for individuals aged 21 and over would rise from £11.44 to £12.21 per hour starting in April, while employers' National Insurance contributions would increase from 13.8% to 15%.

Retailers responded in November, cautioning that the combination of elevated wages and taxes would render job reductions "inevitable," potentially resulting in price hikes and store closures.

In a Christmas trading update released on Thursday, Marks & Spencer (M&S) characterized the economic outlook regarding growth, inflation, and interest rates as "uncertain," noting that it is "facing higher costs due to well-documented tax increases."

Nevertheless, M&S reported a successful Christmas season, with like-for-like food sales rising by 8.9%, and sales in clothing, home, and beauty categories increasing by 1.9%.

Like-for-like sales exclude revenue generated from newly opened stores during the reporting period.

For the 13 weeks ending on 28 December, overall sales rose by 5.6%.

Other retailers also shared their trading updates for the holiday season, including Tesco, which reported a 4.1% increase in UK sales for the six weeks ending on 4 January, with food sales climbing by 4.7%. The company anticipates full-year operating profits to reach £2.9 billion.

On Thursday, Helen Dickinson, the chief executive of BRC, stated that the organization's modeling, in conjunction with forecasts from 52 chief financial officers, has resulted in a projection of significantly increased food price inflation for the latter part of the year.

"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," she said.

However, the Treasury said food inflation had "fallen from a peak of 19.6% under the previous government to just 1.9%".

It said that the Labour government was "now focused on putting more money in people's pockets by growing the economy".

A representative stated that the organization is assisting retailers by reforming business rates.

The lobby group reported that food price inflation in December stood at 1.8%, marking its lowest level since November 2021.

The British Retail Consortium (BRC) employs a distinct basket of goods to assess inflation, differing from the official statistics provided by the Office for National Statistics; however, the results are generally comparable.

In the lead-up to Christmas, there was an overall decline in shop prices, attributed primarily to deflation in non-food items, according to the BRC.

The rate of price increases for fresh produce, including fruits and vegetables, rose by 1.2%, while inflation for pantry staples reached 2.8%.

Retailers have expressed concerns regarding potential price hikes as a result of the measures outlined in the Budget.

This week, Next announced plans to increase prices on certain clothing items starting in April to counterbalance an "unusually high" £73 million rise in staff wages and taxes.

Next projected a price increase of 1% over the course of a year, which remains below the current inflation rate. UK inflation reached 2.6% in the twelve months leading up to November, the highest rate observed in eight months.

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Despite rising food prices and increased operational costs, the retail sector has demonstrated resilience, with companies like Marks & Spencer and Tesco reporting strong sales growth. Retailers are adapting to the changing economic landscape by finding ways to manage the impact of higher wages and taxes.

Innovations, strategic price adjustments, and successful holiday seasons suggest that businesses are positioning themselves to weather these challenges. With ongoing support from the Treasury and the potential for further economic growth, the future of the retail market remains hopeful, and consumers may see more affordable options in the long term.