Gloom spreads across UK retailers after budget tax rises, CBI says

8:22 am Tuesday, November 26th, 2024

By David Milliken

LONDON (Reuters) – British retailers’ optimism has fallen to a two-year low following finance minister Rachel Reeves’ first budget as they brace for higher employment costs and soft consumer demand, the Confederation of British Industry said.

Reeves announced a 25 billion pound ($31 billion) increase in employment taxes in her Oct. 30 budget and a 7% rise in the minimum wage, both of which will particularly hurt retailers with low margins and large numbers of staff.

“The last time retailers felt this gloomy was back in November 2022, at the peak of the inflation shock,” CBI lead economist Ben Jones said. “The stark rise in Employers’ National Insurance next year will hit retailers hard.”

The CBI’s quarterly survey of retailers showed their assessment of the business situation dropped to -21 in November from -13 in August.

When the optimism balance was last lower, surging food and energy costs were causing consumers to tighten their belts and former prime minister Liz Truss’ budget plans had led to a jump in mortgage rates.

Consumers’ mood has been subdued, though not as bad as it was two years’ ago. The CBI’s monthly retail sales balance sank to -18 in November from October’s -6, its lowest since August, while the outlook for December retail sales sank to -29.

Official retail data for October showed a sharp fall in sales volumes.

Reeves told the CBI’s annual conference on Monday she would never again make similar tax rises to those last month.

Before Labour’s July 4 election victory, Reeves had outlined only limited tax rises, but after coming to power she said the outgoing Conservative government had left a much worse fiscal legacy than she had expected.

CBI chief executive Rain Newton-Smith said the tax rises had caught businesses off guard and would lead to lower business investment and slower economic growth.

Tuesday’s survey showed retailers planned to cut investment and hiring, though less so than in August.

The survey was based on responses from 75 retail chains between Oct. 29 and Nov. 14.

($1 = 0.7949 pounds)

(Reporting by David Milliken. Editing by Andy Bruce and Mark Potter)