Britain’s largest retailers are warning they could be forced to cut thousands of jobs this year as the industry braces for higher taxes and employment costs after a bleak Christmas shopping season.
In the latest sign of tough trading conditions on the high street, figures from the British Retail Consortium (BRC) show sales growth over the “golden quarter” between October and December came close to flatlining.
For the three months to December – when many retailers make the bulk of their annual profits – the BRC said total UK retail sales growth was 0.4% year on year as shoppers prioritised spending on food and drink over the festive season. Once inflation was factored in, retail sales by volume slid over the year.
For 2024 overall, total sales increased by 0.7% from 2023, highlighting a cautious approach to consumer spending as households continue to grapple with higher prices after the worst inflation shock in decades.
Separate figures from Barclays show zero growth in consumer card spending in December, as households cut back on essential items and pub and restaurant meals in favour of spending on experiences.
Helen Dickinson, the chief executive of the BRC, said retailers were poised for a challenging year as they faced £7bn of additional costs from tax increases and new regulations planned by the government.
Pressure is mounting on Keir Starmer’s government amid signs of a worsening slowdown in the British economy, with growth on track to have flatlined for the entire second half of 2024.
Business leaders have warned that measures in Labour’s budget to increase employer national insurance contributions by £25bn from April and a 6.7% rise in the national minimum wage will force companies to cut jobs or pass on the higher employment costs in the form of higher prices.
Clive Black, a retail industry analyst, said he had doubled his forecast for food inflation to 3% for 2025 from 1.5%, claiming it was “UK government policy that is now the prime source of grocery price appreciation”.
Retailers including Tesco, Marks & Spencer and Next wrote to Rachel Reeves in November to warn that a £7bn increase in annual costs afterthe budget would lead to job cuts and higher prices.
Dickinson said the government needed to take steps to ease the pressure on struggling retailers, or risk widespread job losses.
“With little hope of covering these costs through higher sales, retailers will likely push up prices and cut investment in stores and jobs, harming our high streets and the communities that rely on them,” she said.
The chancellor has rebuked critics of her budget for offering no alternatives, arguing tax increases are vital for fixing austerity-starved public services while ensuring sustainable government finances.
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Consumer spending has come under pressure after inflation rocketed to a peak of 11.1% in October 2022 after the exit from pandemic lockdowns and Russia’s invasion of Ukraine triggered a surge in living costs, leading the Bank of England to raise interest rates to the highest level in 15 years.
Inflation has fallen back to more normal levels, but is forecast to remain above the Bank’s 2% target until 2027 – limiting its scope for rate cuts. Households have begun to repair the damage to their finances after a period of wages rising above inflation, but consumers have maintained a cautious approach to spending.
Separate figures from the audit firm BDO show retail sales in discretionary spend categories grew by 2% year on year in the golden quarter, compared with a fall of 1.6% in the same period in 2023.
However, it warned much of the increase was driven by online sales, as high street stores continued to struggle with sales growth of just 0.1% in the final three months of the year.
BDO said that bad weather and flooding in parts of the UK may have driven consumers to shop online, where sales increased by 20.7%. However, the audit firm warned the struggling performance on the high street could be compounded by higher employment costs and tax rises.
Sophie Michael, head of retail and wholesale at BDO, said: “Businesses are yet to feel the impact of increased wage costs introduced in the budget which disproportionately impacts consumer-facing sectors. Recent reports note that 170,000 shop workers lost their jobs in 2024, with an expectation that this number will only increase in 2025.”
The government has been approached for comment.