Retailers in the United Kingdom are warning that inflation may remain above the Bank of England’s 2 % target for longer than expected, citing high labour and business costs that could keep price increases elevated.
The comments come as the central bank’s latest monetary policy report shows inflation easing but still above the target, and the British Retail Consortium urges policymakers to consider the impact of employment cost pressures on prices.
Retail cost pressures and inflation outlook
The Bank of England’s February 2026 Monetary Policy Report shows UK consumer price inflation at 3.4 % in December 2025, down from previous peaks but still well above the 2 % target set by the government.
While the central bank’s Monetary Policy Committee (MPC) has cut interest rates and expects inflation to continue to ease, wage growth and price pressures remain above levels consistent with meeting the inflation target in the medium term.
This means inflation could remain sticky and slow to return to target, especially if cost pressures persist.
Retailers say these cost pressures are being felt directly in stores. In a statement responding to the Bank’s report, Helen Dickinson, Chief Executive of the British Retail Consortium, noted that “inflation, particularly in food, remains above target as a result of elevated ‘wage and price pressures’.”
She pointed to higher employer contributions and wage bills as factors adding to operational costs for retailers.
Impact of employment costs on shop prices
Retail businesses employ millions of workers and face rising costs tied to the labour market. The BRC highlighted that increases in employer National Insurance Contributions, higher wage bills, and new packaging taxes have forced retailers to absorb extra spending.
These, the trade body said, contribute to ongoing inflationary pressure on shop prices and could delay the return to the Bank’s 2 % measure.
This aligns with broader trends in the UK economy. Official data showed that food and non-alcoholic beverage prices rose by 4.5 % in the year to December 2025, while transport costs also climbed, indicating that key components of consumer inflation remain strong.
Government policy and future inflation risks
The BRC also warned that upcoming government actions could influence inflation’s path.
The association said the proposed Employment Rights Act and other labour-related policies could impose new costs and administrative burdens on retailers, potentially pushing inflation higher again if not designed with industry realities in mind.
Retailers urged the government to collaborate with businesses to “design policies which work in the real world” to avoid unintended consequences for pricing and employment.
While the Bank of England and government remain focused on bringing inflation back toward 2 %, the combination of labour cost pressures, regulatory changes and persistent price increases in key sectors may make that target harder to reach in the short term.
