UK shop prices dropped significantly, marking the lowest inflation in over three years.
- Annual shop prices contracted by 0.8%, deepening from the previous month’s decline.
- Food inflation decreased to 1.9%, the lowest rate since late 2021.
- Non-food prices continued their decline, showing a 2.1% annual drop.
- Bank of England considers interest rate cuts as inflation pressures stabilize.
In a significant economic shift, the UK has observed its shop prices fall to the lowest level in over three years, as per the latest data from the British Retail Consortium and NielsenIQ. The annual shop prices showed a contraction of 0.8%, deepening from September’s 0.6% decline. This drop highlights the lowest inflation rate since August 2021.
Despite a slight month-on-month increase of 0.1% in shop prices for October, following a 0.2% decline in September, the overall trend points to easing inflation pressures. Food inflation, in particular, dropped to 1.9% annually, marking its lowest rate since November 2021, and down from 2.3% the previous month.
Moreover, the decline in non-food prices has been substantial, showing a 2.1% decrease over the year. These figures, released ahead of the official inflation report, suggest potential trends in the overall inflation landscape. The official inflation estimate from the Office for National Statistics showed a decrease to 1.7% in September from 2.2% in August, indicating a potential miss on the Bank of England’s 2% target.
There is growing speculation over upcoming interest rate cuts by the Bank of England as price pressures stabilize. The markets are anticipating potential policy easing at the upcoming November and December meetings. Helen Dickinson, the chief executive of the BRC, highlighted the benefits of the decreasing price inflation for households. However, she also pointed out the vulnerability of this trend to geopolitical tensions, climate-related disruptions, and regulatory cost increases.
The global market anxieties remain, with geopolitical tensions being a key concern for supply chains. Recent conflicts between Israel and Iran posed a potential threat to oil prices, but after Israel refrained from targeting Iranian oil infrastructure, prices of Brent crude and WTI saw a notable drop.
Food inflation, peaking near 20% in March 2023 due to rising energy and wage costs, has been easing with stabilizing supply chain pressures. Retailers are leveraging the housing market’s recovery by discounting DIY products, while fashion sales have seen a slight increase as discount strategies are relaxed.
Consumer spending patterns are yet to rebound to pre-pandemic levels, impacted by high household expenses and a cautious approach to savings. Analysts note that retailers might need to implement further discounts to attract cost-conscious consumers, especially with the Christmas promotions commencing.
Mike Watkins from NielsenIQ remarked on the consumer uncertainty surrounding spending habits. As the holiday season approaches, competition among retailers for discretionary spending is predicted to intensify, with effective seasonal offers becoming crucial.
The decline in UK shop price inflation presents a cautiously optimistic outlook, though it remains sensitive to external global pressures.
