UK retailers brace for uncertainty in 2025

The insight: UK retailers are pessimistic about their 2025 prospects due to weak consumer confidence and high costs stemming from the Labour government’s budget.

• Marks & Spencer warned that “the external environment remains challenging” due to economic headwinds alongside a higher tax burden.
• Likewise, Tesco pointed to economic uncertainty, rising grocery inflation, and budget-related cost increases as challenges for the year ahead.

The concerns: British retailers ended 2024 on a sour note, as a late surge in spending failed to deliver a meaningful boost to holiday retail sales. Pending increases in the minimum wage and in employers’ National Insurance contributions are adding to retailers’ angst, forcing many to consider price hikes and reduce hiring to mitigate rising costs.

• Business confidence is at its lowest level since autumn 2022, when concerns over then-Prime Minister Liz Truss’ budget wreaked havoc on the UK economy, per the British Chambers of Commerce.
• The additional cost pressures are expected to drive inflation in 2025, despite efforts by retailers like Marks & Spencer and Tesco to absorb as much of the increases as possible.
• Over half (54%) of companies plan to raise prices as a result of the Labour government’s budget, according to a Bank of England survey, while 61% expect profits to fall.
• The British Retail Consortium expects food prices to rise by an average of 42% in the second half of the year, “while nonfood will return firmly to inflation,” chief executive Helen Dickinson said.

Our take: UK retailers have the unenviable task of dealing with an economic slowdown alongside a considerable tax hike, sparking fears of stagflation—an echo of the events that brought down Truss’ government over two years ago.

While some—like Marks & Spencer, Next, and Tesco—have the scale and resources to navigate those headwinds, the combination of weak consumer confidence and rising costs could prove too much for others to handle.

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