Inflation dynamics in the UK are setting the stage for a significant impact on the retail sector, with new business rates anticipated to add £140m to costs.
- Inflation fell to 1.7% in September, marking the first time in over three years it’s been below Bank of England’s 2% target.
- Despite the overall drop, food inflation increased by 0.6 percentage points to reach 1.9%, indicating sector-specific inflationary pressures.
- The September Consumer Price Index (CPI) will dictate the rise in business rates next April, affecting retail heavily.
- The British Retail Consortium warns of stunted investment and job creation due to these new financial pressures.
Inflation in the United Kingdom has dipped to 1.7% as reported in September, a notable decrease that brings it under the Bank of England’s 2% target for the first time in over three years. This decline, however, does not paint the full picture across all sectors, with food inflation having increased by 0.6 percentage points, reaching 1.9%, demonstrating continued pressure in this essential category.
The implications of the September Consumer Price Index are significant, particularly for the retail industry, which anticipates a £140 million increase in business rates due next April. This adjustment comes at a challenging time for retailers and underscores the ongoing volatility within the sector.
Kris Hamer, director of insight at the British Retail Consortium, has vocalized concerns about the negative impact of these business rate hikes, stating that they have been “damaging investment and preventing the creation of new shops and jobs.” He emphasized that further increases in business taxes could exacerbate these issues if introduced in the upcoming Budget.
Moreover, certain costs such as transport have decreased, acting as a counterbalance to rising food prices, which saw a month-on-month price jump of 1.7%, albeit down from the previous month’s 2.2% surge. Inflation in other areas remains varied, with alcohol and tobacco seeing a notable 4.9% rise, whereas the clothing sector experienced a slowdown from 1.6% to 0.8%.
Looking ahead, expectations are pointing towards a rise in the headline inflation figure for October, anticipated to approach 3%, following Ofgem’s decision to lift the energy price cap. This prospective increase presents additional challenges, particularly as it could hinder real wage growth during what is traditionally a crucial sales period for retailers, known as the Golden Quarter.
In response to these compounded challenges, the British Retail Consortium is advocating for the introduction of a Retail Rates Corrector, proposing a 20% downward adjustment in business rates paid on retail premises. This measure, according to Hamer, aims to “redress the imbalance that sees retailers paying a higher proportion of their profits in taxes compared to almost any other industry.”
The evolving inflationary landscape poses multifaceted challenges for the retail industry, demanding strategic responses to mitigate financial impacts.