The UK’s shop price inflation has decreased to its lowest in over three years, influenced by easing food prices and potential interest rate cuts.
- Annual shop prices contracted by 0.8% over the year to October, marking the lowest inflation rate since August 2021.
- Food inflation dropped to 1.9% annually, the lowest since November 2021, contributing significantly to the decline.
- Non-food prices saw a 2.1% decline over the year, continuing a downward trend.
- External factors including geopolitical tensions and regulatory costs remain challenges for stabilising inflation.
According to data from the British Retail Consortium (BRC) and NielsenIQ, the UK’s annual shop prices contracted by 0.8% over the year to October, deepening from September’s 0.6% decline. This statistic marks the lowest inflation rate since August 2021. In a month-on-month analysis, shop prices rose slightly by 0.1% in October following a 0.2% decline in September.
Food inflation has dropped to 1.9% annually, down from 2.3% the previous month, representing the lowest rate since November 2021. This easing in food prices has significantly influenced the overall decline in shop price inflation, after having peaked near 20% in March 2023 due to rising energy and wage costs.
Meanwhile, non-food prices continued to fall, showing a 2.1% decline over the year. Retailers have been capitalising on the housing market’s recovery by offering discounts on DIY products. Fashion sales too have seen a resurgence, with prices slightly edging up as discounts are reduced.
The BRC’s shop price index is often considered a precursor to the overall inflation trends, with September’s official inflation estimate from the Office for National Statistics falling to 1.7% from 2.2% in August. Markets are now anticipating a series of interest rate cuts by the Bank of England, with policy easing expected at upcoming meetings in November and December.
Helen Dickinson, the Chief Executive of the BRC, acknowledged the continued downward trend in price inflation. However, she cautioned that this trajectory is vulnerable to external pressures such as geopolitical tensions, climate-related disruptions to food supplies, and increased regulatory costs. Dickinson also called for a reform in business rates by the Chancellor in the forthcoming budget, to alleviate operational costs for high-street retailers.
Global geopolitics remain a concern, with potential impacts on supply chains. Recent events have seen a 5% drop in Brent crude and WTI oil prices, after Israel refrained from targeting Iranian oil infrastructure. This has temporarily alleviated fears of a spike in production costs.
Consumer spending remains cautious, hindered by high household bills and savings habits since the Covid-19 pandemic. Retail sales have not returned to pre-pandemic levels, prompting analysts to suggest that retailers might need to offer more discounts to attract budget-conscious shoppers. As highlighted by Mike Watkins, Head of Retailer and Business Insight at NielsenIQ, competition for discretionary spending is expected to intensify with the advent of Christmas promotions.
The ease in UK shop price inflation presents a positive development, but vigilance is required amid geopolitical and economic uncertainties.