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Tsunami of costs could prove to be a 'permanent blow' for retailers, report warns

Soaring costs endured by Britain's retailers could prove to be a 'permanent blow' for the sector, new findings have warned.

While retailers fared relatively well in the first quarter, a mounting 'tsunami' of costs and falling consumer spending could have a negative impact on many businesses in the sector, the latest assessment by KPMG/Ipsos Retail Think Tank members suggests.

The return of full business rates, utility bill hikes and a national insurance increase will put pressure on margins, meaning some retailers may simply end up being unable to shoulder further financial burdens.

Paul Martin, head of retail at KPMG in the UK, said: 'The retail sector has a bumpy few months ahead as cost pressures start hitting from many directions.

'In addition to the domestic economic conditions, the conflict in Ukraine and lockdown in China is expected to lead to rising food prices, both through higher fertiliser costs and wholesale food prices, as well as increased prices of some metals and other commodities and continued supply chain issues.'

He added: 'The two biggest areas of short-mid-term focus for UK retailers will be cost-efficiency, alongside operational resilience.

'The next quarter could be challenging for retail with many competing priorities, although it is likely the longer we see high inflation and real household incomes falling, the greater the chance that consumer spending will also fall.

'Whilst we expect the health of the sector fall by one point in the next quarter, Q3 and Q4 could be an even greater challenge.'

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