Retailers have blamed rising energy bills and Chancellor Rachel Reifs’ rise in employers’ National Insurance Contributions for their price hikes, as suppliers and supermarkets struggle to absorb the higher costs.
The British Retail Consortium (BRC), the trade body for retailers, said that prices across all goods in shops rose by 1.5 per cent in January compared with the same month last year, up from a 0.7 per cent rise in December and a 0.7 per cent rise economists had been expecting. This is also above the three-month average of 0.9%.
The BRC’s monthly price monitor showed food prices rose by 3.9% year-on-year in January. Fresh food inflation rose to 4.4 percent during the same period.
Helen Dickinson, chief executive of the BRC, said: “Inflation has not been easily captured by these figures. This month’s increase in shop prices continues to push up prices.”
He added: “Meat, fish and fruit were particularly affected, also reflecting weak supply and strong demand, while inflation increased in non-food categories including furniture, flooring and health and beauty.”
In his first budget since Labor returned to power in 2024, Reuss raised the employers’ National Insurance Contribution (NICS) rate from 13.8 per cent to 15 per cent from last April. The levy threshold for NIC was also cut from $9,100 to $5,000 per annum. The national minimum wage rose 6.7 percent in April.
Retailers have previously said the rise will force them to shift customers to higher employment costs and add to UK inflationary pressures.
BRC analysis has previously shown that the combination of these two increases meant that costs for a retailer employing a full-time minimum wage worker increased by 10 per cent, compared to 13 per cent for part-time workers. This increase is now being felt in the supplier’s food chain, it said.
“It’s a tough time for households. Retailers work to reduce their ability to keep prices low in a competitive market, but thin margins and rising costs from government policy make it harder,” Dickinson said.
A Treasury spokesman said: “The fair and necessary decisions we made in this Budget ultimately mean we can deliver on the country’s priorities – reducing waiting lists, cutting debt and borrowing and reducing the cost of living.
“We know that working people are struggling with rising prices and the cost of living. That’s why we’re providing stability, reducing debt and reducing inflation. The Bank of England predicts that food price inflation has eased in December and is expected.”
The BRC said that “energy charges” for retailers and suppliers, which were partly due to rising green tariffs, were also “flowing into retail prices”.
The report added to growing signs that inflation in the UK is proving stickier than forecasters had hoped.
Official data released last week showed inflation rose to 3.4 percent in December, up from 3.2 percent in November. Meanwhile, a closely watched survey of purchasing managers – compiled by S&P Global – said UK businesses reported a sharp rise in spending in January, with the overall pace of inflation unchanged from December’s seven-month high.
Inflation in non-food items was slower than food, at 0.3 percent over the year. This is higher than the 0.6% decline in prices in December and the three-month average of -0.3%.
Mike Watkins, head of retail and business insight at NIQ, which helps compile the monthly BRC report, said cautious consumer spending meant retailers could continue to offer discounts during the normal winter sales period.
“Shoppers are always wary of spending in January and this cannot be helped by the persistence of inflation. However, there are still savings at the checkout as some non-retailers are still on growth and many food retailers continue to cut prices on everyday items on the way,” he said.
