There is widespread apprehension regarding the UK’s economic climate in 2025 with the general mood among retail financial leaders being downbeat, according to the BRC’s sentiment index. The majority (70%) expressed a lack of confidence in future trading conditions, whereas only 13% held an optimistic view. The remaining 17% remained neutral.
Top concerns for the CFOs include a decrease in demand, rising inflation rates, and growing tax and regulatory pressures.
In light of the upcoming hike in employer National Insurance Contributions (NICs) scheduled for April 2025, many are considering cost-cutting measures: 56% may cut hours or overtime, 52% are looking at reducing head office staff, and 46% are contemplating store staff reductions. Additionally, about one-third indicated that increased costs might drive further automation efforts.
This data emerges shortly after a group of 81 retail CEOs addressed their budgetary concerns to the Chancellor in a letter outlining potential cost increases for the industry totalling over £7bn ($8.56bn) in 2025 due to NIC changes (£2.33bn), National Living Wage increments (£2.73bn), and a restructured packaging levy (£2bn).
BRC chief executive Helen Dickinson said: “With the budget adding over £7bn to their bills in 2025, retailers are now facing into the difficult decisions about future investment, employment and pricing. As the largest private sector employer, employing many part-time and seasonal workers, the changes to the NI threshold have a disproportionate effect on both retailers and their supply chains, who together employ 5.7m people across the country.”
The recent UK Autumn Budget’s influence on broader business investment is also evident, with nearly half of the CFOs planning to trim capital expenditures and a quarter anticipating delays in new store openings. Profit downturns are anticipated by 44% of those surveyed, which could tighten investment abilities.
Retailers also face challenges beyond the budget, including weak consumer confidence and demand. They are anticipating reduced consumer spending in early 2025 as concerns about the economic outlook increase, leading to a decline in consumer confidence.
Projections from CFOs indicate that shop price inflation could rise from the current rate of 0.5% to an average of 2.2% in the latter half of 2025, with food inflation potentially reaching an average of 4.2% and non-food at 1.2%.
Retail sales growth expectations remain subdued; while an improvement on the previous year’s figure is expected, the forecasted growth rate of 1.2% still falls below inflation rates.