The chief of the British Retail Consortium (BRC) has warned that tax-raising measures announced in the latest government may lead to the return of inflation in the UK.
Shop prices remained in deflation in November, down 0.6 per cent month on month, up from deflation of 0.8 per cent in the previous month. Shop price annual growth remained its lowest rate since September 2021, according to the BRC.
But, Helen Dickinson said that “significant price pressures on the horizon” could mean that November’s figures “may signal the end of falling inflation.”
“Retail already operates on slim margins, so these new costs will inevitably lead to higher prices,” she added.
The warning comes off the back of BRC data showing that the retail industry faces £7bn of additional costs in 2025 because of changes to employers’ national insurance contributions (NICs), business rates, an increase to the minimum wage and a new packaging levy.
In a letter last week, the BRC said retail businesses will be especially badly hit by the changes the government has made to employer NICs due to their heavy reliance on part-time workers, many of which were previously exempt from the tax as their pay didn’t reach the old threshold.
The wage threshold at which employers must start paying NICs has been lowered from £9,100 to £5,000, while the overall tax rate has risen 1.2 per cent to 15 per cent.
Sophie Michael, head of retail and wholesale at BDO, has previously warned that deflation is being driven by widespread discounting, which has put further pressure on retailers’ margins.
“The reliance on discounted online sales to drive growth is not only putting huge pressure on retailers’ margins, but it is also a very costly way of doing business because of the high level of returns. It simply isn’t sustainable,” Michael added.
The BRC’s warning comes after a statement from Clare Lombardelli, Bank of England deputy governor, who yesterday argued that the outlook for wages and services prices, both of which are seen as crucial gauges of underlying inflationary pressure, was “unclear”.
Last week official figures showed that inflation rose back up to 2.3 per cent in October, with services inflation rising to 5.0 per cent and wage growth still ahead of target at 4.8 per cent.