Retail prices in the UK have declined for the first time in nearly three years, as reported by recent data from the British Retail Consortium and NielsenIQ.
- Prices in August saw a 0.3% decrease compared to the previous year, marking the lowest rate since October 2021.
- Non-food items experienced a notable reduction of 1.5% in prices, attributed to significant discounting amid unsold summer stock.
- Food price inflation eased, with fresh food prices slowing to a 1% increase, the lowest rate since December 2020.
- Despite easing prices, the economic outlook remains uncertain due to potential climate impacts and geopolitical tensions.
In August, British retail prices experienced a significant shift, falling by 0.3% compared to the same period last year. This represents a sharp turnaround from the 0.2% inflation observed in July and is the lowest rate of retail price changes since October 2021. This decline is largely attributed to significant discounting by non-food retailers, which have been facing a challenging summer due to poor weather and the ongoing cost of living crisis, as noted by Helen Dickinson, Chief Executive of the British Retail Consortium.
The non-food category witnessed a substantial year-on-year price drop of 1.5%, marking the lowest rate since July 2021 as retailers aimed to clear out unsold summer merchandise. This strategy of aggressive discounting not only helped reduce prices but also encouraged consumer spending in specific retail sectors.
Food prices similarly saw a moderation in their inflation rates. The annual food price inflation declined to 2% in August, a decrease from 2.3% in July. More specifically, fresh food prices experienced a notable slowdown, with inflation easing to 1%, the lowest since December 2020. This reduction was partly driven by decreased supplier input costs. Meanwhile, inflation for ambient food items, which are stored at room temperature, also decelerated slightly to 3.4% from 3.6%.
Despite these easing prices, the outlook remains cautious. Helen Dickinson highlighted potential concerns, stating that the uncertain economic climate, influenced by factors such as climate change impacting global harvests and rising geopolitical tensions, might lead to renewed inflationary pressures in the following year.
Retail sales in the UK showed signs of recovery in July, bolstered by increased discounting strategies and higher spending in department stores and on sports equipment, following unfavorable weather earlier in the summer. According to the Office for National Statistics, the volume of goods purchased rose by 0.5% from June to July, contrasting with a 0.9% contraction seen in the preceding month. Sales in department stores showed a 4% increase, while sports equipment, games, and toy stores experienced a 3.5% rise. Despite these gains, sales at clothing and household goods stores fell by 0.6%, and fuel sales decreased by 1.9% despite lower pump prices.
Overall, while the quantity of goods purchased remains 0.8% below pre-pandemic levels, household spending has increased by 19% since February 2020. This reflects the enduring impact of high inflation on consumer purchasing power.
The decline in retail prices signals a temporary relief in inflation, though future economic conditions remain uncertain.
