UK retailers warn on sticky inflation as business confidence edges higher

Summary:UK shop price inflation rose to 0.7% in DecemberFood inflation accelerated while non-food prices fellRetailers warn higher wages and regulation may keep prices stickyBusiness confidence improved but remains below averageCapex intentions rose to a 2.5-year highUK retailers raised prices at a faster pace in December and warn that further increases may be difficult to avoid in 2026, even as broader business confidence shows early signs of stabilisation, according to new industry data and corporate surveys released Tuesday.Figures from the British Retail Consortium showed annual shop price inflation edged up to 0.7% in December (0.6% expected) from 0.6% in November, remaining in line with its three-month average. While overall inflation remains modest, the composition of price pressures is becoming more concerning for policymakers.Food inflation accelerated to 3.3% year-on-year, up from 3.0% the previous month, reflecting ongoing cost pressures across supply chains. By contrast, prices for non-food items continued to fall, declining 0.6% annually, unchanged from November, as retailers used discounting to stimulate demand and clear inventories.BRC chief executive Helen Dickinson said retailers would continue efforts to limit price rises, but warned that easing pressures from lower energy costs and improved crop conditions may be offset by rising policy-driven costs. She highlighted increasing regulation and higher labour expenses as key risks to keeping inflation contained.Those labour pressures are set to intensify in April, when the UK’s minimum wage rises by 4.1% to £12.71 an hour. Staffing costs have already been lifted by measures introduced in Chancellor Rachel Reeves’ first budget in October 2024, adding to the challenge for price-sensitive sectors such as retail. The Bank of England is monitoring food prices closely, given their role in shaping household inflation expectations, even as headline CPI eased to 3.2% in November.Against that backdrop, separate survey data suggest corporate sentiment is improving slightly. A quarterly CFO survey from Deloitte showed the net balance of business optimism rose to -13% in Q4 from -24% in Q3, though confidence remains below historical averages. Deloitte’s chief economist Ian Stewart described sentiment as cautious but improving, noting reduced perceptions of external uncertainty and a modest pickup in risk appetite. Preliminary December PMI data from S&P Global echoed that view.Notably, the share of executives prioritising capital expenditure rose to a two-and-a-half-year high of 17%, signalling tentative willingness to invest. Still, the contrast between improving confidence and persistent cost pressures suggests UK firms face a difficult balancing act in 2026.
This article was written by Eamonn Sheridan at investinglive.com.

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