UK Retail Price Inflation Plummets to Its Lowest in Nearly Two Years

ByDayne Lee

Jan 30, 2024

January witnessed a notable slowdown in the pace of growth in the UK, as retailers offered substantial discounts in an effort to stimulate sales during a sluggish period. This development has sparked hopes that inflationary pressures might be easing.

According to the latest industry data, UK shop price inflation significantly declined in January to its lowest rate in nearly two years. This decrease was driven by retailers implementing heavy discounts on goods during a period of weak sales. The British Retail Consortium (BRC) reported that annual shop price inflation slowed to 2.9% in January, a considerable drop from the 4.3% observed in December. This marks the seventh consecutive month of decline and the lowest rate since May 2022.

The BRC shop price index serves as an early indicator of pricing pressures and is closely watched ahead of the official data release scheduled for February 14. The declining trend in shop inflation is seen as a positive sign, indicating that the underlying inflationary pressures are continuing to ease. This is in contrast to the uptick in the headline measure to 4% in December.

The reduction in shop inflation stems from retailers’ strategies of offering heavily discounted goods in their January sales to attract consumer spending amidst weak demand, explained BRC Chief Executive Helen Dickinson. Despite a slight increase from 3.9% in November, December’s inflation rate remained significantly below the multi-decade high of 11.1% reached in October 2022.

Market analysts are forecasting that the Bank of England will maintain the benchmark interest rate at its 15-year high of 5.25% in its upcoming meeting on Thursday. However, there is an expectation that the Bank will start reducing rates in June as inflation is projected to decelerate towards the BoE’s 2% target.

Dickinson also noted changes in specific product prices. The cost of milk and tea saw a decrease in January compared to the previous month. However, increased alcohol duties have kept the cost of drinks higher.

In terms of non-food prices, there was a 1.4% month-on-month decline, leading to an overall annual decrease 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, who contributed to compiling the data, commented on the savings that shoppers are experiencing at checkout. He observed that non-food retailers are offering promotions and food retailers are reducing prices when the costs of goods decrease.

The BRC data also showed a deceleration in annual food inflation, which eased to 6.1% in January from 6.7% in December. This rate is significantly below the peak of 15.7% in April 2023. Both fresh and ambient food prices registered declines in their annual growth rates. Fresh food inflation eased from 5.4% to 4.9%, while ambient food inflation – referring to items that can be stored at room temperature – decreased from 8.4% to 7.7%.

This data suggests that official food price inflation is likely to continue slowing down after dropping to 8% in December, down from a 45-year high of 19.1% in March. Over the past two years, food and energy prices have surged, primarily due to the impact of Russia’s invasion of Ukraine in early 2022. This surge has hit the poorest households the hardest.

Despite the significant reduction in price growth, the BRC cautioned about potential risks to the economic outlook. These include 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. Dickinson highlighted that rising geopolitical tensions could add further uncertainty and costs to supply chains.

The UK is witnessing a slowing growth rate and easing inflationary pressures, as indicated by the latest retail data. This trend is driven by heavy discounting strategies employed by retailers, alongside a complex array of economic factors including policy decisions, geopolitical tensions, and shifts in consumer behavior. These factors will continue to shape the economic landscape, influencing both market expectations and monetary policy decisions in the months to come.


Featured image credit: Jack Gisel via Unsplash

Dayne Lee

I have a background that includes experience as a day trader in the financial sector before transitioning into my current role as an editor. My focus is on ensuring our stories are accurate and engaging for our readers, and I enjoy collaborating with our writers to provide the best news coverage possible. This journey from finance to writing has been both challenging and rewarding.