Food and drink inflation was 2% in December 2024, up 0.5% compared to November 2024. This marks the fourth consecutive month that food and drink prices have accelerated.
Products with the highest price rises included olive oil (22.3%), cocoa and powdered chocolate (17.8%), edible offal (14.1%), lamb and goat (11.7%), chocolate (11.7%) and butter (10 .2%).
Prices fell the fastest for frozen seafood (-5.6%), pizza and quiche (-4.6%), and dried, salted or smoked meat (-3.8%).
Whilst food inflation figures only small uptick between November and December 2024, retailers have warned prices will increase further off the back of National Insurance Contribution (NIC) rises.
According to the British Retail Consortium (BRC), two-thirds of retailers are set to raise their prices in response to NIC costs with chief financial officers (CFO) expressing ‘significant concern’ around trading conditions over the next 12 months.
The findings come from a recent poll conducted by the BRC, which collated responses from CFOs from 52 retailers. It found that an overwhelming number have gloomy prospects for future trade, with 70% feeling ‘pessimistic’ or ‘very pessimistic’.
Among the biggest concerns are falling demand for goods and services, inflation for goods and services, and the increasing tax and regulatory burden – with all three featuring in 60% of CFOs top worries for their business.
While 67% said they’d increase prices in response to NI costs, more than half (56%) said they’d reduce the number of hours/overtime, 52% said they’d cut head office headcount and 46% store headcount. Meanwhile, 31% said the increased costs would lead to further automation.
When asked to give their predictions on the year ahead, the CFOs said they expect shop inflation to rise to an average of 2.2% in the second half of 2025. This would be most pronounced for food, where inflation is expected to hit an average of 4.2% in the second half of the year.
“Despite all the work manufacturers have done over the last couple of years to keep costs down for UK consumers, unfortunately food and drink price inflation persists,” commented Balwinder Dhoot, director of industry growth and sustainability at the Food and Drink Federation (FDF).
“Unexpected increases to national insurance, rises in the minimum wage, and the introduction of multi-billion pound fees to businesses to pay for recycling reforms will add to the costs of food production. This is alongside record high prices for some global commodities, like cocoa, coffee and olive oil.”
The impact of the Budget on wider business investment was also made evident in BRC’s findings, with 46% of CFOs saying they will reduce capital expenditure and 25% saying they would delay new store openings.
Almost half (44%) of respondents expected reduced profits, which will limit the capacity for investment further.
The BRC’s survey follows hot on the heels of a letter addressed to the Chancellor, in which 81 retailers expressed their concerns over the economic consequences of the Budget.
The letter estimated a rise of more than £7m to retail overheads as a result of changes to NIC costs (£2.22bn), the National Living Wage (£2.73bn) and the reformed packaging levy (£2bn).
While retailers expect sales growth to improve, they believe it will remain below inflation meaning the industry could be facing a year of falling sales volumes at the same time as huge new costs resulting from the Budget.
“With the Budget adding over £7bn to their bills in 2025, retailers are now facing into the difficult decisions about future investment, employment and pricing. As the largest private sector employer, employing many part-time and seasonal workers, the changes to the NI threshold have a disproportionate effect on both retailers and their supply chains, who together employ 5.7m people across the country,” said Helen Dickinson, chief executive at the BRC.
“Retailers have worked hard to shield their customers from higher costs, but with slow market growth and margins already stretched thin, it is inevitable that consumers will bear some of the burden. The majority of retailers have little choice but to raise prices in response to these increased costs, and food inflation is expected to rise steadily over the year. Local communities may find themselves with sparser high streets and fewer retail jobs available. Government can still take steps to shore up retail investment and confidence. Business rates remain the biggest roadblock to new shops and jobs, with retailers paying over a fifth of the total rates bill. The Government must confirm the planned reforms will make a meaningful difference to retailers’ bills and that no shop will end up paying more.”
Although November 2024 saw the UK economy growing for the first time in three months, the figure is lower than economists predicted at just 0.1%. With tax rises coming in April and set to stunt growth, the Government will be pressed to help reverse the course.
“It’s critical that government works with industry to mitigate the impact of new taxes and regulation, to minimise price rises for consumers, and to help businesses continue to make the case for investment. We’d urge government to sharpen its focus on accelerating growth by creating a more supportive business environment for UK manufacturers, with a particular focus on the quality and cost of regulation,” Dhoot added.