UK Shop Price Inflation Sees Significant Drop to Lowest Level in Almost Two Years

According to industry data, shop price inflation in the UK experienced a substantial decline in January, reaching its lowest rate in nearly two years. The British Retail Consortium (BRC) reported that the annual shop price inflation decreased to 2.9%, a notable drop from December’s 4.3%. This marks the seventh consecutive monthly decrease and represents the lowest rate since May 2022.

The BRC shop price index, offering an early insight into pricing pressures before the official data release on February 14, indicates a positive trend in easing underlying inflationary pressures. This is in contrast to the headline measure, which saw an uptick to 4% in December.

The decrease in shop inflation can be attributed to retailers heavily discounting goods during their January sales to stimulate consumer spending amid weak demand, according to BRC Chief Executive Helen Dickinson.

Despite a slight increase from 3.9% in November, December’s inflation rate remained well below the multi-decade high of 11.1% reached in October 2022.

Market expectations suggest that the Bank of England will maintain the benchmark interest rate at its 15-year high of 5.25% on Thursday. However, rate cuts are anticipated to begin in June as inflation is projected to slow towards the Bank of England’s 2% target.

Helen Dickinson highlighted that the prices of milk and tea decreased in January compared to the previous month, while increased alcohol duties kept drink costs elevated.

The BRC reported a 1.4% month-on-month fall in non-food prices, contributing to an overall annual decline across all categories. Annual non-food inflation slowed to 1.3% in January from 3.1% the previous month, marking the lowest rate since February 2022.

Mike Watkins, Head of Retailer and Business Insight at NielsenIQ, emphasized that shoppers are benefiting from savings at the checkout, with non-food retailers offering promotions, and food retailers continuing to reduce prices when the costs of goods decrease.

Annual food inflation also decelerated to 6.1% in January, down from 6.7% in December, falling well below the peak of 15.7% in April 2023, according to BRC data. Both fresh and ambient food prices exhibited a decline in the annual rate of growth.

Despite the significant pullback in price growth, the BRC cautioned about potential risks to the outlook, such as new cost pressures from higher business rates and the increase in the national living wage from April, as well as unrest in the Red Sea contributing to uncertainty and costs in supply chains.

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