British Retail Consortium: Shop prices rise as retailers face 2025 cost pressures

Retailers in the UK are bracing for a challenging year ahead as price pressures mount.

With 2025 likely to see an end to shop price deflation, grocery shoppers are being warned of further food price hikes in the coming months as retailers pass on the costs of new tax rises introduced in the latest budget.

According to the latest data from the British Retail Consortium (BRC), shop price deflation slowed to 1.0% in December 2024, down from 0.6% in November.

While the latest figures reflect deep Black Friday discounts, analysts caution that the underlying trend points to rising prices, particularly for food, as the year progresses.

December’s shop price data was influenced by the later timing of Black Friday in 2024, which brought much of the discounting into the measurement period. This made non-food deflation appear more significant than it may be in reality.

Non-food prices fell by 2.4% in December, compared to a 1.8% drop in November.

This represents the most significant level of deflation since April 2021. However, the trend is expected to reverse as cost pressures on retailers intensify.

Food Prices Stabilise but Set to Rise

Food inflation remained steady at 1.8% in December, consistent with the three-month average.

Fresh food inflation held at 1.2%, while ambient food inflation edged up slightly to 2.8%.

Food inflation has eased considerably since earlier in the year, marking its lowest rate since December 2021.

However, Helen Dickinson, Chief Executive of the BRC, warned of higher costs looming on the horizon.

“Food inflation may have bottomed out, but with £7 billion in increased costs coming in 2025 due to the Budget, including higher employer National Insurance, National Living Wage increases, and new packaging levies, prices are set to rise.

Our modelling suggests food prices will increase by an average of 4.2% in the latter half of 2025, and non-food prices will return to inflation.”

Retailers are facing significant headwinds as they navigate a range of new cost pressures in 2025. Business leaders are urging the government to act, particularly on business rates reforms.

“The government must ensure its proposed reforms to business rates do not result in stores paying more than they already do,” Ms Dickinson added.

Mike Watkins, Head of Retailer and Business Insight at NielsenIQ, noted that shoppers benefited from lower inflation and significant discounts in December, especially as retailers sought to make up for weaker sales earlier in the year.

However, he cautioned that household costs remain high and could impact consumer spending in 2025.

“Retailers will need to carefully manage inflationary pressures in the months ahead,” Watkins said.

While December’s data offered some short-term relief for consumers, the outlook for 2025 points to higher prices across the board.

With rising operational costs, tighter margins, and limited government support, retailers are likely to pass on these increases to shoppers, spelling an end to the era of shop price deflation.