Inflation in UK shops drops to lowest level in two years | Inflation

Inflation in shop prices in the UK has eased to the lowest level for more than two years after retailers cut prices on Easter treats, clothing and electrical goods amid a slowdown in spending by consumers in the cost of living crisis.

Industry figures show prices rose at an annual rate of 1.3% in March, down from a rate of 2.5% in February – the slowest pace since December 2021, according to the latest monitor from the British Retail Consortium (BRC) trade body and the market research firm NielsenIQ.

Non-food inflation dived to just 0.2% from 1.3% in the previous month, while food inflation fell to 3.7% from 5%.

The figures come amid growing hopes that the worst of the toughest increase in inflation for 40 years has passed, with anticipation that the Bank of England could begin cutting interest rates within months to ease pressure on households.

Helen Dickinson, the chief executive of the BRC, said inflation had fallen back amid fierce competition between retailers to entice consumer spending, as hard-pressed households cut back to make ends meet.

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“While Easter treats were more expensive than in previous years due to high global cocoa and sugar prices, retailers provided cracking deals on popular chocolates, which led to price falls compared to the previous month,” she said.

“Dairy prices also fell on the month as farm gate prices eased, and retailers worked hard to lower prices for many essentials. In non-food, prices of electricals, clothing and footwear fell as retailers increased promotions to entice consumer spending.”

Competition has stepped up as households continue to rein in spending on non-essentials amid high energy bills and food costs as well as increases in mortgages and rents as a result of higher interest rates.

The advisory firm BDO’s regular survey of mid-sized retailers, many of which are fashion chains, found shoppers spent about 2% less in equivalent stores in the week to 24 March compared with the same week a year before, with homewares and fashion hit particularly hard. In-store sales were poor despite more people visiting shopping destinations, where footfall was up by about 2%.

Mike Watkins, the head of retailer insight at NielsenIQ, said that a key driver of easing inflation was weaker growth in food prices: “A year ago, food inflation was 15% so this was to be expected. But it is also helped by intense competition among the supermarkets as they look to drive footfall, with focused price cuts and promotional offers earlier in the month for Mother’s Day and now again in the weeks leading up to Easter.”

The fall in shop prices will increase hopes that overall inflation is dropping closer to the Bank of England target of 2%. The Bank is forecasting that headline inflation as measured by the consumer prices index will fall below that level in April.

However, a drop in the rate of inflation does not mean the overall cost of living will fall – prices will continue to rise but at a slower pace than over the past year.

Financial markets expect Threadneedle Street to begin cutting rates from the current level of 5.25% from as early as May or June. Such a development would be seized on by Rishi Sunak, the prime minister, as evidence of progress in the economy as the Conservatives battle to overturn a commanding Labour lead in opinion polls.

However, Dickinson warned that increases in the legal minimum wage and business rates for many firms, combined with additional Brexit-related border checks and new recycling plans “could put progress on bringing down inflation at risk”.

These costs include a 6.7% business rates rise, recycling proposals and new border checks. The national living wage also increased from Monday from £10.42 an hour to £11.44 an hour, the largest funding increase for more than a decade.

“The industry needs pro-growth government policy that supports investment and helps keep down prices for households up and down the country,” she said.

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