Retailers have warned that further tax increases could extend inflationary pressure after shop prices in the UK rose again in September, adding to the financial burden on households already facing persistent cost-of-living pressures. The latest figures suggest a shift in price trends that may influence both consumer behavior and retail strategies in the coming months.
According to The Guardian, industry bodies have pointed to a range of factors contributing to the changes, including fiscal policy and input costs. Retailers are closely monitoring these developments, while policymakers prepare for critical decisions in the upcoming budget that could affect both pricing and demand.
Shop Price Inflation Increases Amid Shifting Price Dynamics
According to the latest figures from the British Retail Consortium (BRC) and NIQ, annual shop price inflation rose to 1.4% in September, up from 0.9% in August. This marks the end of more than a year of deflation on non-food goods, with prices now 0.1% lower year-on-year, compared to a 0.8% decrease the month before.
The BRC report highlighted that rising costs in home improvement and gardening goods have offset stabilising food prices, contributing to the overall inflation uptick. In contrast, falling prices on back-to-school items such as laptops helped dampen inflation on other household goods, including DIY products.
Food Prices Stabilize, but Farm Input Costs Remain High
While food price inflation held steady at 4.2% in September, the same as in August, the BRC said signs suggest that food inflation has peaked, with retailers expecting a gradual decline later this year or in early 2026.
Yet certain categories continue to face persistent pressure. According to the BRC, dairy and beef prices remain high, driven by elevated energy and labor costs, which are being passed along the supply chain.
Helen Dickinson, chief executive of the BRC, noted:
Households are finding shopping increasingly expensive. The impact on retailers and their supply chain of both global factors and higher national insurance and wage costs is playing out in prices for consumers.
Tax Policy and Rising Costs Pose Continued Risks
Retailers are warning that government tax measures could exacerbate the situation. The new packaging tax, set to take effect in October, is likely to put further upward pressure on inflation.
Dickinson added:
While retailers continue to absorb higher costs as much as possible and deliver value to customers, any further tax rises in the upcoming budget would keep shop prices higher for longer. Ultimately, it is British households who will bear the consequences – positive or negative – of the chancellor’s decisions.
The BRC estimates that UK retailers will face £7 billion in additional costs in 2025, following changes to employers’ national insurance contributions (NICs), packaging levies, and the legal minimum wage introduced earlier this year.
Fragile Consumer Sentiment Influences Pricing Strategies
According to Mike Watkins, head of retailer and business insight at NIQ, weak consumer sentiment continues to impact sales patterns.
With inflationary pressures persisting, many shoppers remain concerned about their personal finances and are becoming increasingly price-sensitive – he said.
This is prompting many retailers to maintain promotional strategies and discounting to preserve sales volumes, especially as demand remains fragile.
Government Fiscal Choices Under Scrutiny
Chancellor Rachel Reeves has indicated that tax increases or spending cuts may be necessary to address a £30 billion shortfall in public finances, driven by slower-than-expected economic growth and revisions to UK productivity estimates.
The Bank of England recently opted to maintain interest rates, citing concerns that persistent food prices could continue to support headline inflation. This decision underscores the broader macroeconomic uncertainty that retailers and households face as fiscal and monetary policies evolve.
