UK Retail Prices Rise as Cost Pressures Threaten Further Increases in 2026

British retail prices rose at a faster pace last month, and retailers may find it difficult to prevent further price increases in 2026 as cost pressures continue to build, according to the British Retail Consortium (BRC). The latest data highlights ongoing challenges for the UK retail sector as inflation remains persistent despite some easing factors.

Annual shop price inflation increased to 0.7% in December, up slightly from 0.6% in November and broadly in line with the three-month average, the BRC reported. This modest rise suggests that while inflation is not accelerating sharply, downward pressure on prices remains limited. Food prices were a key driver, with annual food inflation climbing to 3.3% in December from 3.0% the previous month. In contrast, non-food prices continued to fall, declining by 0.6% year-on-year, matching November’s pace of decrease.

Helen Dickinson, Chief Executive of the British Retail Consortium, said retailers will continue to do everything possible to keep prices low for consumers. However, she warned that while falling energy costs and improved crop supplies may help ease some pressures, rising public policy costs and increased regulation are likely to keep inflation “sticky” in the months ahead. These structural cost increases are making it harder for retailers to absorb expenses without passing them on to shoppers.

One major factor adding to retailer costs is the planned rise in Britain’s minimum wage. From April, the minimum wage will increase by 4.1% to £12.71 per hour, significantly raising staff expenses for businesses across the retail sector. Employers are also still adjusting to higher costs introduced in Finance Minister Rachel Reeves’ first budget in October 2024, which added further financial strain.

The Bank of England is closely monitoring food price inflation, as it believes food costs play an important role in shaping consumer inflation expectations. Although the UK’s overall consumer price inflation eased to 3.2% in November, persistent food inflation could slow progress toward price stability.

Looking ahead, the combination of rising wages, regulatory costs, and cautious consumer demand suggests UK retailers may face continued pricing challenges well into 2026, keeping shop price inflation firmly in focus for policymakers and households alike.