Retailers have cautioned the government that further tax rises could worsen inflation pressures, as shop price inflation edged higher in September. The latest British Retail Consortium (BRC) and NIQ report showed annual shop price inflation rose to 1.4% in September, compared with 0.9% in August.
The rise was driven by increases in home improvement and gardening goods, which offset stabilising food prices. After 18 months of deflation, non-food goods prices are now close to turning positive, with just a 0.1% annual decline compared with 0.8% in August.
Food Price Inflation Steadies
Food price inflation held steady at 4.2% in September, unchanged from August. Back-to-school discounts on laptops helped offset some household cost pressures, but dairy and beef prices remain elevated.
Helen Dickinson, Chief Executive of the BRC, said households are facing “increasingly expensive” shopping trips as high energy, wage, and insurance costs ripple through supply chains. The April rise in employers’ national insurance contributions (NICs), along with higher packaging levies and minimum wage changes, have pushed up input costs for farmers and retailers alike.
Consumer Confidence Remains Weak
Mike Watkins, Head of Retailer and Business Insight at NIQ, warned that low consumer confidence is forcing retailers to rely on promotions to keep sales moving. “Many shoppers remain concerned about their finances and are becoming increasingly price-sensitive,” he noted.
Retailers believe food inflation has now peaked and expect easing later in 2025 or into 2026. However, earlier this month the Bank of England decided against cutting interest rates, citing concerns about persistent food price pressures.
New Taxes Could Add Pressure
The BRC has warned that the new packaging tax, due in October, will add to inflationary pressures. Dickinson said: “Any further tax rises in the upcoming budget would keep shop prices higher for longer. Ultimately, it is British households who will bear the consequences.”
Retailers face an estimated £7bn rise in costs this year, according to the BRC, as a result of government changes to NICs, packaging charges, and wage legislation. Chancellor Rachel Reeves has signalled that tax rises or spending cuts may be needed to plug a £30bn fiscal gap.
