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UK shop price inflation falls to three-year low as food prices ease

October 30, 2024

Shop price inflation in the UK drops to its lowest level in over three years, with food prices falling as interest rate cuts loom. Discover how economic shifts are impacting UK retailers and consumer spending.

UK shop price inflation has reached its lowest point in over three years, providing a welcome reprieve for consumers and raising hopes for potential interest rate cuts.

According to data from the British Retail Consortium (BRC) and NielsenIQ, annual shop prices contracted by 0.8 per cent over the year to October, deepening from September’s 0.6 per cent decline. This marks the lowest inflation rate since August 2021.

Month-on-month, shop prices rose by 0.1 per cent in October, following a 0.2 per cent decline in September. Food inflation dropped to 1.9 per cent annually, the lowest rate since November 2021 and down from 2.3 per cent the previous month. Non-food prices, meanwhile, continued to fall, showing a 2.1 per cent decline over the year.

The BRC’s shop price index, released ahead of the official inflation report, often provides an early indication of overall inflation trends. September’s official inflation estimate from the Office for National Statistics fell to 1.7 per cent from 2.2 per cent in August, signalling a potential undershoot of the Bank of England’s 2 per cent target. With stabilising price pressures, expectations are growing for a series of interest rate cuts by the Bank of England, with markets anticipating policy easing at upcoming November and December meetings.

Helen Dickinson, chief executive of the BRC, welcomed the continued downward trend in price inflation but noted it remains susceptible to external pressures. “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 said. Dickinson also urged Chancellor Rachel Reeves to consider reforming business rates in the forthcoming budget to help lower operational costs for high-street retailers.

Geopolitical tensions remain a key factor for global supply chains, with concerns that escalating conflict between Israel and Iran could impact oil prices. However, after Israel refrained from targeting Iranian oil infrastructure in recent retaliatory strikes, the price of Brent crude and WTI dropped by around 5 per cent on Monday, allaying immediate fears of a production cost spike.

Food inflation, which peaked near 20 per cent in March 2023 due to rising energy and wage costs, has been gradually easing as global supply chain pressures stabilise. In non-food categories, retailers are capitalising on the housing market’s recovery by discounting DIY products, according to the BRC. Meanwhile, fashion sales are seeing a resurgence, with prices edging up slightly for the first time since January as retailers ease back on heavy discounts.

Consumer spending has remained subdued since the Covid-19 pandemic, hindered by high household bills and cautious saving behaviours. Retail sales have yet to return to pre-pandemic levels, and analysts suggest that retailers may need to roll out further discounts to attract budget-conscious shoppers.

Mike Watkins, head of retailer and business insight at NielsenIQ, highlighted that consumer uncertainty around spending habits is high. “With Christmas promotions now underway, competition for discretionary spend will intensify across both food and non-food retailing,” he said, noting the importance of attractive seasonal offers as the industry enters the critical holiday trading period.