UK prices to rise as retailers pass on higher employment costs, BRC says

By Suban Abdulla

LONDON (Reuters) - British retailers will likely push up their prices in the coming months in response to higher employment costs in April, according to a survey on Tuesday which showed a rebound in prices in February after the end of January sales.

The British Retail Consortium said shop prices in February were 0.7% lower than a year earlier - the same annual fall as in January.

But prices rose by 0.4% in monthly terms in February following a 0.4% fall in January - the biggest month-on-month increase in a year after a rise in food prices and an end to seasonal sales promotions for electrical goods and furniture.

BRC chief executive, Helen Dickinson, said shop prices will likely rise further as retailers face a 7 billion pound ($8.88 billion) rise in annual costs this year due to a nearly 7% rise in the minimum wage, packaging levies and an increase in payroll taxes announced in finance minister Rachel Reeves' October budget.

The changes, which will come into effect on April 1, have raised questions about how far the higher costs for firms will feed into prices.

Britain's headline rate of inflation hit a 10-month high of 3.0% in January and the Bank of England forecasts it will reach 3.7% in the third quarter of this year.

The BRC said food inflation rose to 2.1% last month, its highest rate since September last year when it stood at 2.3%, reflecting higher prices for foodstuffs including butter, cheese, eggs, bread and cereals. Climbing global coffee prices looked set to push up prices next, it added.

"We expect food prices to be over 4% up by the second half of the year," Dickinson said. "If government wants to keep inflation at bay, enable retailers to focus on growth, and help households, it must mitigate the swathe of costs facing the industry."

Prices of non-food items fell by 2.1%, a bigger annual drop than January's 1.8% decrease despite a 0.5% rise in prices on the month.

($1 = 0.7885 pounds)

(Reporting by Suban Abdulla; editing by David Milliken)