A survey of Chief Financial Officers at 52 leading retailers in the UK has revealed significant concerns about trading conditions, with two-thirds warning they plan to raise prices this year in response to higher taxes announced in the Labour government’s first Budget in October.
The study by the British Retail Consortium (BRC) found sentiment languishing at -57, with 70% of respondents “pessimistic” or “very pessimistic” about the coming 12 months, while just 13% said they were “optimistic” or very “optimistic” (17% were neither optimistic nor pessimistic).
The biggest concerns for over 60% of the CFOs were falling demand for goods and services, inflation for goods and services, and the increasing tax and regulatory burden.
When asked how they would be responding to the increases in employers’ National Insurance Contributions (NICs) from April, two-thirds stated they would raise prices (67%), while around half said they would be reducing the number of staff hours/overtime (56%), head office headcount (52%), and stores headcount (46%). Meanwhile, 31% stated that the increased costs would lead to further automation.
After weeks of criticism of the Budget by the business community, the survey highlighted the potential impact on investment, with 46% of CFOs saying they would reduce capital expenditure and 25% saying they would delay new store openings. 44% of respondents expected reduced profits, which will further limit the capacity for investment.
The BRC noted that the Budget measures were not the only challenge facing retailers, with weak consumer confidence and low consumer demand also key issues. As part of the survey, CFOs offered their forecasts for the year ahead. These suggest that shop price inflation, currently at 0.5%, will 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.
The forecast for sales was more muted. While sales growth is expected to improve on the 2024 level of just 0.7%, at just 1.2%, this would still be below inflation. This means the industry could be facing a year of falling sales volumes at the same time as substantial new costs resulting from the Budget.
“With the Budget adding over £7bn to their bills in 2025, retailers are now facing difficult decisions about future investment, employment and pricing,” said Helen Dickinson, Chief Executive at the BRC.
“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.
“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.”
She concluded: “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.”
Last week, retailers including Next, Tesco, Sainsbury’s, and M&S reported robust Christmas trading but flagged concerns about rising costs, the strength of the economy and the consumer in 2025.
Official UK inflation data published today showed an unexpected dip in December for the first time in three months as hotel prices fell and tobacco costs eased. Prices rose 2.5% in the year to December, down from 2.6% the month before, the Office for National Statistics (ONS) said.
Despite inflation remaining above the Bank of England’s target, analysts still expect interest rates to be cut next month.
NAM Implications:
- No surprises here, hopefully?
- (except perhaps on the part of the government?)
- And as pragmatic business people…
- …retailers are cutting business costs to fit…
- …with anticipated falls in demand to fit.
- Suppliers should be even more concerned about the 33% of retailers that may not respond in this way.
- And hopefully food inflation can be held below the anticipated average of 4.2% in the second half of the year.
- Hopefully…
