(Bloomberg) -- British retail and hospitality bosses have warned prices may rise after Chancellor Jeremy Hunt’s move to increase wages for almost 3 million people. 

Retailers told Bloomberg News they’re concerned the decision could reignite inflation and add significantly to their costs, cautioning that businesses may have to cut jobs and boost prices as a result.  

The measure, unveiled during Hunt’s Autumn Statement last month, represents an almost 10% increase to the national living wage, a base pay level for many adult workers. It’s the biggest hike ever, to £11.44 an hour from £10.42 ($13.13). The eligible age will be lowered to 21 from 23 in April.

The move hits retail and hospitality businesses, which have large, young workforces, especially hard. British shops employ about 3 million people while pubs, restaurant chains and hotels have some 2.7 million staffers. It’s an extra burden for companies that just struggled through Covid lockdowns and a cost-of-living crisis.

“This will put long-term pressure on a business’s ability to continue to invest and create jobs,” said Nick Mackenzie, chief executive officer of Greene King, which has about 2,600 pubs. 

This marks the latest rise in the national living wage, which has been steadily increasing since it was introduced in 2016, while the eligible age has fallen from 25 years old.

Morleys Group, which owns eight department stores across London and Southeast England, expects its wage bill to increase by £1 million next year, to £11 million, thanks to Hunt’s move, according to chairman Bernard Dreesmann. 

The retailer may cut back-office jobs in areas such as administration, finance and marketing to avoid harming customer service on the shop floor.  

“It’s got to be funded out of better trading,” said Dreesmann. “That is difficult because we’re going into a tough economic cycle — inevitably we’re going to have to look at pricing.”

The British Retail Consortium warned that the pay increase, coupled with higher business rates, will “likely stall or even reverse progress” on bringing down inflation, with food prices likely to be affected the most. Grocery price inflation slowed to around 9% last month from 9.7% in October, according to the latest data from Kantar.

“Margins in food retail and service are extremely slim,” said James Walton, chief economist at the Institute of Grocery Distribution. “It’s very hard to see how an organization can accommodate this big increase in wages without some sort of impact on the shopper.”

At least 20% of people employed in hospitality and food retail are paid at or near the national living wage, according to IGD, a trade group.

Supermarkets have been trying to show shoppers they’re curbing inflation. Tesco Plc recently cut prices on more than 2,000 products, while J Sainsbury Plc spent £118 million since March on keeping prices low. Tesco employs about 300,000 people in the UK and Sainsbury about 150,000 — both will face an increased cost burden from the wage hike. 

Sainsbury CEO Simon Roberts noted last month — before the Autumn Statement — that labor costs were already “well up” and contributing to inflationary pressure. 

Retaining staff is already a big challenge in retail as the skills are transferable and it’s easy for workers to quit for a higher-paying job at a rival business, said Anna Vishnyakov, workforce partner at PwC. 

One of the challenges businesses will face is whether to raise wages across pay grades, including managers, to hang onto staff, she said.

“Retailers are already struggling to get people to take these jobs because they may think ‘why would I take extra responsibility for a 50p pay increase?’” she said. “They are already having to put a lot more work into recruiting staff.”

Other bosses gave a cautious welcome to the rise in wages. Travel restaurant operator SSP Group Plc, which employs just under 10,000 people in the UK across brands including Upper Crust, pays about 85% of its workforce in Britain above the living wage. About a fifth of SSP’s business is in the UK. 

CEO Patrick Coveney said the wage hike will force the company to be tighter in areas such as the cost of goods — and that higher wages would filter up through the workforce.

“It will mean from time to time that it can feed through into pricing,” Coveney said. “But I just think society is better where entry level wages are stronger.”

--With assistance from Eamon Akil Farhat and Gina Turner.

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