The UK's food prices are soaring, and retailers are pointing fingers at two major culprits: a national insurance hike and soaring energy bills. The British Retail Consortium (BRC) reports a 1.5% rise in shop prices in January, a significant jump from the previous month's 0.7% increase. This surge is particularly attributed to the 3.9% year-on-year rise in food prices, with fresh food inflation reaching 4.4%.
Helen Dickinson, BRC's CEO, emphasizes that the inflation figures don't support the notion that the current rate has peaked. She highlights the impact of high business energy costs and the national insurance hike on shop prices. Meat, fish, and fruit are among the most affected, with non-food categories like furniture and health and beauty also experiencing rising inflation.
The recent budget introduced by Chancellor Rachel Reeves in 2024 includes a significant increase in employers' national insurance contributions (NICs) from 13.8% to 15%, with a lower threshold for NICs being levied. This, coupled with a 6.7% rise in the national minimum wage, has retailers concerned. They argue that these changes will force them to raise prices, adding to the UK's inflationary pressures.
The BRC's analysis reveals a 10% increase in the cost of employing a full-time minimum wage worker and a 13% rise for part-time workers, affecting the entire food supply chain. Dickinson acknowledges the challenging situation for households, noting that retailers strive to maintain competitive prices despite thin margins and rising government policy costs.
The Treasury, however, justifies its decisions as necessary for achieving national priorities, such as reducing waiting lists and the cost of living. They claim that the Bank of England's forecasts indicate a peak in food price inflation in December, which is expected to decline.
The BRC also highlights the impact of 'spiraling energy charges' on retailers and suppliers, partly due to rising green levies, which are contributing to the rising retail prices. This report adds to the growing evidence that UK inflation is proving more persistent than initially anticipated, with official figures showing a 0.1% increase in December.
Mike Watkins, from NIQ, suggests that cautious consumer spending may lead retailers to extend discounts beyond the typical winter sale period. Despite the ongoing inflation, shoppers can still find savings on non-food items and everyday food items, according to Watkins.
