UK shop prices rise as higher taxes, food costs hit supermarkets

[DURHAM] UK shop prices rose for the first time in almost a year, with supermarkets in particular hurt by higher taxes and wholesale costs.

Year-on-year inflation in stores was 0.4 per cent in June, the British Retail Consortium (BRC) said on Tuesday (Jul 1), compared with -0.1 per cent a month earlier. The increase was driven by a 3.7 per cent rise in food prices, the most on an annual basis since March 2024.

The figures show the effect of the government’s revenue-raising budget kicking in, according to the BRC, including a 6.7 per cent rise in the national minimum wage and a £26 billion (S$45 billion) increase in payroll taxes that took effect in April. That’s happening just as supermarkets grapple with higher wholesale food prices caused by geopolitical tensions and climate change, it said.

The government “must find ways to alleviate the cost pressures bearing down on retailers”, BRC chief executive Helen Dickinson said.

Hot, dry weather means fruit and vegetable prices are reducing yields, the BRC said. Meanwhile, non-food prices fell at the slowest pace since last July.

Food inflation is making it harder for the Bank of England to bring inflation back to its 2 per cent target. Still, central bank officials have voiced confidence that higher interest rates are working and the goal will be met in early 2027, with a cooling jobs market potentially reducing upward pressure on wages.

Overall consumer price inflation, which covers a much wider range of costs including household bills, was 3.4 per cent in May, according to the latest figures from the Office for National Statistics – up from 2.6 per cent in March.

“Rising prices could become a concern if consumer willingness to spend declines later in the year,” said Matt Watkins, head of retailer and business insight at marketing firm NielsenIQ, which compiled the data for the BRC. BLOOMBERG