UK Retailers Warn of Inflation Risks Amid Government Measures and Brexit Challenges

UK inflation has retreated ahead of this crucial Christmas shopping season, according to the British Retail Consortium (BRC). The BRC cautioned Chancellor Rishi Sunak about potential repercussions on the cost of living crisis, expressing concerns that government measures, including Brexit red tape and higher taxes outlined in Jeremy Hunt’s recent autumn statement, could contribute to inflation next year.

Despite a decline in the BRC’s measure of annual shop price inflation to 4.3% in November, down from October’s 5.2%, the BRC clarified that this does not indicate a decrease in shop prices but rather a slower rate of increase. The organization anticipates challenges for retailers in 2024 due to government-imposed measures, such as tax hikes and Brexit-related regulations, which may exacerbate inflation.

Helen Dickinson, CEO of the BRC, emphasized that these factors, combined with the significant increase in the national living wage, could impede progress in reducing inflation, especially in the food sector. While Hunt defended the government’s tough decisions to achieve Sunak’s target of halving inflation this year, the BRC pointed out potential pass-through effects of increased business rates and post-Brexit import checks to consumers through higher retail prices.

The BRC also questioned the sustainability of the nearly 10% increase in the national living wage to £11.44 per hour from next spring. Retail sales volumes, as reported by the Confederation of British Industry (CBI), declined year on year in November for the seventh consecutive month, signaling a challenging festive period for retailers.

Martin Sartorius, principal economist at the CBI, noted retailers’ disappointment with the lack of relief from business rate hikes in the autumn statement. He highlighted the negative impact of strained household finances on the retail sector and expressed concerns about businesses scaling back investment amid weak trading conditions.

In response, the Treasury asserted its support for businesses, citing tax cuts on investment and the extension of business rates relief for over a million properties. A spokesperson highlighted the government’s commitment to reducing inflation next year while promoting growth and rewarding hard work, as confirmed by the Office for Budget Responsibility (OBR).