UK retailers have urged ministers to ease their tax burden as they said that the cost of food and other items will rise sharply throughout the year as companies grapple with higher employment costs.

Food prices are forecast to climb by 4.2% on average in the latter half of the year, while non-food items are likely to increase in line with inflation, which stands at 2.6%, according to modelling by the British Retail Consortium (BRC) and finance leaders of retail businesses.

Retailers will face a £7bn increase in their costs in 2025, the BRC has calculated, as the government’s hikes to employers’ national insurance contributions announced in Rachel Reeves’s October budget come into force, along with the rise in the “national living wage”, as well as new packaging levies.

“As retailers battle the £7bn of increased costs in 2025 from the budget, including higher employer national insurance, national living wage, and new packaging levies, there is little hope of prices going anywhere but up,” said Helen Dickinson, the chief executive of the BRC.

She added: “The government can still take steps to mitigate these price pressures, and it must ensure that its proposed reforms to business rates do not result in any stores paying more in rates than they do already.”

The fashion and homeware retailer Next said this week it will put its prices up by 1% this year to help it to offset a £67m increase in wage costs as they “begin to filter through into the economy”.

Prices in UK shops for both food and non-food items fell by 1% in the first week of December, according to the BRC-NielsenIQ shop price index. The move was driven by retailers offering discounts to attract sales in their Black Friday deals.

Food prices were 1.8% higher in December compared with a month earlier, according to the index. There were lower prices for non-food goods such as clothing and homeware, which fell by 2.4%, the highest rate of deflation since April 2021.

Temporary lower prices due to discounts therefore gave the impression that prices are falling more than the underlying trend, the BRC found.

Shoppers benefited from lower inflation in December than a year earlier, but consumers are likely to remain under pressure from in the coming months, according to Mike Watkins, the head of retailer and business insight at NielsenIQ.

Watkins said: “Higher household costs are unlikely to dissipate anytime soon so retailers will need to carefully manage any inflationary pressure in the months ahead.”

Price pressures experienced during the height of the cost of living crisis eased somewhat during early 2024 but inflation has steadily risen since July, and moved even higher last month, led by confectionery, skincare and juices, taking household spending on festive groceries to a record high of £460 on average, according to the analysts Kantar.

Food price inflation jumped to 3.7% in December, Kantar figures showed, the highest level since March. Sales of take-home groceries in the three months to December rose at most of the largest supermarket chains, including Tesco, the market leader, as well as Sainsbury’s, the discounter Lidl and Marks & Spencer.

Tesco and M&S will report their Christmas trading on Thursday morning, and retail analysts will be watching to see whether they indicate price rises to offset higher taxes.

“Food inflation is going to build in the UK in 2025,” said Clive Black, the head of consumer research at Shore Capital, which like the BRC is forecasting inflation of more than 4% by December.

Despite the increased costs faced by retailers, “the supermarkets will seek to remain shoppers’ champions”, Black said, predicting that the trading environment will remain competitive.