UK shop price inflation drops to its lowest in over three years, offering relief for consumers as food prices ease.
- The British Retail Consortium and NielsenIQ reported a 0.8% annual contraction in shop prices by October, marking a significant low since August 2021.
- Food inflation saw a notable decline, standing at 1.9% annually, down from the previous month’s 2.3%.
- Expectations for interest rate cuts grow as the Bank of England assesses stabilizing price pressures.
- Geopolitical tensions and regulatory costs remain as potential threats to the current inflation trends.
In an encouraging development for UK consumers, shop price inflation has reached its lowest point in over three years. Data from the British Retail Consortium (BRC) and NielsenIQ revealed a 0.8% reduction in annual shop prices by October, deepening from September’s 0.6% decline. This marks the lowest rate of inflation since August 2021, providing some relief amidst economic concerns. Food prices, in particular, have contributed to this overall easing, with food inflation dropping to 1.9%—a decrease from the previous 2.3%. This decline to the lowest level since November 2021 offers hope for continued consumer affordability as we approach the festive season.
While food prices showed a decrease, non-food prices also saw favorable movement, declining by 2.1% over the year. The BRC’s shop price index, released in advance of the official inflation report, often suggests broader trends in inflation, with the official estimate from the Office for National Statistics aligning, showing a drop to 1.7% in September from 2.2% in August. This figure suggests a potential shortfall against the Bank of England’s 2% inflation target, indicating a period of financial adjustment. Markets are now looking forward to possible interest rate cuts, with the Bank of England potentially easing policy measures in the upcoming months.
Helen Dickinson, the chief executive of the BRC, expressed optimism regarding the continued downward trend in inflation, but cautioned that it remains vulnerable to external factors. “Households will welcome the easing in price inflation, but this trajectory is vulnerable to geopolitical tensions, climate-related disruptions to food supplies, and increased regulatory costs,” she stated. Calls for the Chancellor to reform business rates in the forthcoming budget are being made to further assist high-street retailers in managing operational costs.
Geopolitical factors continue to influence global supply chains, with particular concerns over potential conflicts that might impact oil prices. However, recent actions have led to a decrease in oil prices by around 5%, alleviating immediate concerns over production costs. Food inflation, which peaked near 20% in March 2023, has been gradually easing as global supply chain pressures stabilize. This stabilization has allowed retailers to focus on recovering sectors, such as the housing market, which is benefiting from discounts on DIY products, and fashion, where prices are showing a slight increase for the first time since January.
Despite these positive signs, consumer spending remains cautious as households continue to face financial burdens from post-pandemic expenses. While retail sales have yet to reach pre-pandemic levels, analysts suggest that retailers may need to increase discounts to attract budget-conscious shoppers. According to Mike Watkins, head of retailer and business insight at NielsenIQ, “With Christmas promotions now underway, competition for discretionary spend will intensify across both food and non-food retailing,” highlighting the importance of appealing offers during this critical period.
The UK’s decreasing inflation rates present a cautiously optimistic outlook, albeit intertwined with economic uncertainties and global pressures.
