Food prices will rise due to budget tax hikes, retail body warns

Grocery shoppers are being warned of more hikes to food costs in the months ahead due to retailers passing on the cost of budget tax rises.

The British Retail Consortium (BRC) warned that food prices will increase by an average of 4.2% in the latter half of the year - piling more pressure on households at a time when consumers are already facing leaps in unavoidable costs including water, council tax and energy bills.

It blamed the impact of budget measures announced by Chancellor Rachel Reeves in October, which businesses have widely denounced as an attack on investment, jobs, and pay.

The retail body spoke up as many top retail brands reported on their Christmas progress ahead of April's looming surge in costs but found their share prices come under widespread pressure amid investor concerns about the outlook.

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Tesco, as part of its update, warned of a £250m annual impact from higher employer National Insurance contributions alone from the next financial year.

The UK's largest retailer maintained its annual profit forecast for 2024/25 despite its best market share performance since 2016.

Its shares were down 2%.

M&S shares plunged 6%, in their worst intraday fall in almost two years despite robust growth in food sales, by 8.9% on a comparable basis, while growth in clothing and home and beauty was up by almost 2%.

Greggs shares were more than 9% down after it warned of a "challenging market backdrop" amid weak consumer confidence.

Discount retailer B&M saw further bleeding in its shares, down 8%, after its festive sales missed market expectations.

Industry data released earlier this week had already revealed Tesco, Sainsbury's, Lidl and M&S were the big sales winners over Christmas, as far as groceries were concerned. Asda and the Co-op were seen as the main strugglers.

Ocado, which has a retail partnership with M&S, saw the largest growth in the online sphere.

Much of the focus, however, is on the future given the volume of complaints within the sector - one of the country's biggest employers - about the budget measures.

The key message since the fiscal event has been that shoppers will pay a price.

The industry sales data, revealed by Kantar Worldpanel on Tuesday, showed the annual rate of grocery price inflation at 3.7% in the four-week December period, its highest level since March, and a jump on the 2.6% reported for the 12 months to November.

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The BRC's chief executive, Helen Dickinson, said on Thursday: "As retailers battle the £7bn of increased costs in 2025 from the budget, including higher employer NI (National Insurance), 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% 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."

Despite the looming pressure ahead on supermarket margins from the budget, it is clear that grocery chains had a robust Christmas season.

Tesco boss Ken Murphy said: "We delivered our biggest-ever Christmas, with continued market share growth and switching gains.

"Our strong performance reflects the investments we have made, positioning Tesco as the UK's cheapest full-line grocer for over two years, improving quality across all our ranges, with more than half of this year's Christmas range new or improved, and providing the best experience for our customers in-store and online."

His counterpart at M&S, Stuart Machin, said: "The external environment remains challenging, with cost and economic headwinds to navigate, but there is much within our control.

"At M&S, we stay close to our customers and their needs, and with that in mind our investment in trusted value, along with great quality, style and innovation remains our priority."

(c) Sky News 2025: Food prices will rise due to budget tax hikes, retail body warns