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UK shop prices have entered deflation for the first time in almost three years as retailers discounted summer stock on the back of poor sales and bad weather, in a boost to households after a long period of high price rises.
The British Retail Consortium said on Tuesday that shop prices fell by an annual rate of 0.3 per cent in August, down from a 0.2 per cent rise in July, marking the first deflation since October 2021.
The industry body’s shop price index, which provides an early indication of pricing pressures ahead of official data on September 18, suggests the slowing in costs growth seen since the start of this year will continue in the summer.
BRC chief executive Helen Dickinson said: “Households will be happy to see that prices of some goods have fallen into deflation.”
She said the trend had been driven by non-food costs declining further, with retailers discounting heavily to shift summer stock, particularly in fashion and household goods
“This discounting followed a difficult summer of trading caused by poor weather and the continued cost of living crunch impacting many families,” added Dickinson.
The BRC figures suggest the Office for National Statistics measure of food price inflation, which will be published next month, will continue to ease after coming in at 1.5 per cent in July.
That reading was unchanged from June and down from a 45-year high of 19.2 per cent in March 2023. Food prices have risen sharply since wholesale energy and commodities costs surged in the wake of Russia’s full-scale invasion of Ukraine.
Official UK CPI inflation, which unlike BRC data includes services and housing costs, rose less than expected to 2.2 per cent in July after hitting the Bank of England’s target of 2 per cent in the previous two months. CPI hit a 41-year high of 11.1 per cent in October 2022.
With price pressures softening, the BoE cut interest rates by 0.25 percentage points to 5 per cent in August, the first reduction in the benchmark rate in four years. Financial markets expect another rate cut in November.
The BRC said non-food prices fell by an annual rate of 1.5 per cent in August, bigger than the 0.9 per cent decline in July.
Annual food inflation slowed to 2 per cent in August from 2.3 per cent in July, the lowest reading since November 2021. The trend was driven by the fresh food category, where inflation slowed to 1 per cent in August from 1.4 per cent in the previous month.
Dickinson said price pressures for fruit, meat, and fish eased as supplier input costs fell. But she warned that the outlook for commodity prices was “uncertain” because of the impact of climate change on harvests domestically and globally, and rising geopolitical tensions.
“As a result, we could see renewed inflationary pressures over the next year.”
