Retail bosses have sounded the alarm over impending food price hikes. Industry chiefs are pointing fingers at the recent Budget’s increased business costs, such as a higher National Living Wage and National Insurance hikes, predicting these will be passed onto consumers in the latter part of the year.
Despite Tesco and Marks & Spencer reporting robust Christmas sales, the British Retail Consortium (BRC) has painted a grim picture, stating there is “little hope” of food prices doing anything but climbing in the second half of 2025. They anticipate food inflation to jump from 1.8 percent last month to 4.2 percent later this year, with warnings that prices for items like vegetable oil, orange juice, butter, and coffee are set to rise.
Tesco has enjoyed a 3.1 percent increase in like-for-like sales, excluding VAT and fuel, over the 19 weeks leading up to January 4, which has propelled its market share to the highest since 2016 at 28.5 percent. Meanwhile, Marks & Spencer’s food sales surged by nearly 9 percent.
However, Tesco is bracing for a £250m annual blow due to extra national insurance costs. Ken Murphy, Tesco’s Chief Executive, has acknowledged the inevitability of price rises but insists the supermarket giant will strive to minimise customer impact. He stated: “What we’re not saying is ‘there will be no inflation’. What we’re saying, ‘we’ll do our best to mitigate the impact’,” reports Bristol Live.
The British Retail Consortium (BRC) has released figures today indicating that overall shop prices, including both food and non-food items, were 1 percent lower in December than the same month last year. The average price of non-food items – ranging from TVs to furniture and fashion – dropped by 2.4 percent, a positive sign for consumers.
The BRC reported that food inflation remained steady at 1.8 percent in December, with many supermarkets reducing vegetable prices ahead of Christmas to attract customers. The Treasury stated that the independent Office for Budget Responsibility predicts food inflation will remain below 2.2 percent this year. However, the BRC disputes this. Their modelling suggests food prices will increase by an average of 4.2 percent in the second half of the year, while non-food categories are expected to return to inflationary territory.
Helen Dickinson, the BRC chief executive, warned: “There is little hope of prices going anywhere but up.” She continued: “With food inflation bottoming out at 1.8 percent, and many price pressures on the horizon, shop price deflation is likely to become a thing of the past. As retailers battle the £7 billion of increased costs in 2025 from the Budget, including higher employer NI, National Living Wage, and new packaging levies, there is little hope of prices going anywhere but up.”
“Modelling by the BRC and retail chief financial officers suggest food prices will rise by an average of 4.2 percent in the latter half of the year, while Non-food will return firmly to inflation. Government can still take steps to mitigate these price pressures, and it must ensure that its proposed reforms to business rates do not result in any stores paying more in rates than they do already.”
Mike Watkins, Head of Retailer and Business Insight at NielsenIQ, commented: “During December, shoppers benefited from both lower inflation than last year and bigger discounts as both food and non-food retailers were keen to drive sales after a slow start to the quarter. However, higher household costs are unlikely to dissipate anytime soon so retailers will need to carefully manage any inflationary pressure in the months ahead.”
Investment firm Shore Capital added: “We normally think about UK food inflation against a backdrop of commodity prices, competition, crude oil and currencies. However, for 2025, following on from recent political developments, it is the UK government policy that is now the prime source of grocery price appreciation.”