Food inflation will rise to 6% by the end of the year – posing a “significant challenge” to household budgets in the run-up to Christmas, industry leaders have predicted.
The British Retail Consortium is warning that the chancellor risks “fanning the flames of inflation” if she hikes taxes in the coming budget.
Despite intense price competition between supermarket chains, the BRC has sounded the alarm over the pace of grocery price hikes.
As of this month, food inflation has risen 4% year on year – its highest level since February 2024.
The BRC said this increase is linked to global factors, such as high demand and crop struggles.
Beef, chicken and tea prices are among those that have risen the most this year – but some of the blame is being laid squarely at the chancellor’s door too.
The BRC said it was inevitable that a £7bn burden, through changes to employers’ national insurance contributions and minimum pay rules after last October’s budget, had been partly passed on to customers in the form of higher prices.
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It published the results of a survey of retail industry finance chiefs to illustrate its point – that nerves about what Ms Reeves’s second budget could bring were not helping companies invest in either new employment or prices.
Business was promised it would be spared additional pain after it was put on the hook for the bulk of the chancellor’s tax-raising measures last year.
However, speculation is now rife over who will feel the pain this autumn as she juggles a deterioration in the public finances.
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A widening black hole is estimated at around £20bn.
The cost of servicing government debt has risen since the last budget, while U-turns on welfare reforms and winter fuel payment cuts have made her job even harder – making further tax-raising measures inevitable.
The survey of chief financial officers for the BRC showed the biggest current fear ahead was for the “tax and regulatory burden”.
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Two-thirds of the CFOs predicted further price rises in the coming year, at a time when the headline rate inflation already remains stuck way above the Bank of England’s target of 2%.
It currently stands at 3.6%.
Helen Dickinson, chief executive of the BRC, said: “Retail was squarely in the firing line of the last budget, with the industry hit by £7bn in new costs and taxes.
“Retailers have done everything they can to shield their customers from higher costs, but given their slim margins and the rising cost of employing staff, price rises were inevitable.
“The consequences are now being felt by households as many struggle to cope with the rising cost of their weekly shop.
“It is up to the chancellor to decide whether to fan the flames of inflation, or to support the everyday economy by backing the high street and the local jobs they provide.”
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She concluded: “Retail accounts for 5% of the economy yet currently pays 7.4% of business taxes and a whopping 21% of all business rates.
“It is vital the upcoming reforms offer a meaningful reduction in retailers’ rates bill, and ensures no store pays more as a result of the changes.”
The Treasury has been approached for comment.
