Shop price inflation in the UK has reached a three-year low, providing some relief to consumers.
- Annual shop prices declined by 0.8% as of October, marking a deeper contraction from September’s figures.
- Food inflation dropped to 1.9% annually, the lowest recorded since November 2021.
- Non-food items continued to show a decline, with a 2.1% decrease over the past year.
- Potential interest rate cuts by the Bank of England loom as stabilising price pressures are observed.
According to data from the British Retail Consortium (BRC) and NielsenIQ, the annual shop price inflation has decreased by 0.8% for the year leading to October, showing a steeper decline from the previous month’s 0.6% reduction. This marks the lowest level of shop price inflation observed since August 2021. In a month-on-month observation, shop prices rose slightly by 0.1% in October, contrasting with a 0.2% decrease in September.
The contraction in food inflation was notable, reaching 1.9% annually. This represents its lowest point since November 2021, with a decrease from the previous month’s rate of 2.3%. Meanwhile, non-food prices have also been declining, showing a 2.1% reduction over the year. The British Retail Consortium’s shop price index provides an early signal of overall inflation tendencies, often preceding the official reports.
Official figures from the Office for National Statistics in September indicated a fall in inflation to 1.7% from 2.2% in August. This aligns with market expectations that the Bank of England may soon ease its monetary policy through a series of interest rate cuts, potentially at upcoming meetings in November and December. The stabilisation of price pressures seems to hint at an evolving economic landscape.
Helen Dickinson, the chief executive of the BRC, expressed appreciation for the ongoing reduction in price inflation. However, she cautioned that the situation remains fragile due to external influences such as geopolitical tensions and climate-related disruptions. Dickinson urged the Chancellor to consider reforming business rates in the forthcoming budget to assist high-street retailers in reducing operational expenses.
Geopolitical concerns particularly impact global supply chains, with tensions between Israel and Iran potentially influencing oil prices. Recently, the risk to oil prices eased somewhat after Israel avoided targeting Iran’s oil infrastructure, leading to a 5% decrease in both Brent crude and WTI prices.
Globally, food inflation, which peaked near 20% in March 2023, has been easing as supply chain challenges stabilise. In non-food sectors, retail sellers are leveraging the housing market recovery by lowering prices on DIY products. Fashion retail has observed a slight increase in prices as discounts are scaled back. Despite this, consumer spending remains sluggish, hindered by high living costs post-pandemic. Retail sales yet remain below pre-pandemic levels, indicating a potential necessity for further consumer incentives.
Vigilance remains high among consumers regarding expenditure habits. As the holiday season approaches, competition for discretionary spending is increasing within both food and non-food retail segments. With Christmas promotions already in progress, attractive seasonal offerings are becoming critical to draw cautious shoppers.
As UK shop price inflation reaches its lowest in three years, market dynamics appear to be stabilising, albeit with ongoing external risks.
