Retail price inflation fell more than expected in February, giving households relief from cost-of-living pressures as retailers increased discounting and global food prices fell.
New data from the British Retail Consortium (BRC) and NielsenIQ showed that retail prices rose 1.1 percent year-on-year in February, down from 1.5 percent in January. The slowdown reflects intensified competition in both the food and non-food sectors, with retailers cutting prices to stimulate demand amid weak consumer confidence.
The figures come ahead of the spring statement, when the Office for Budget Responsibility is due to review its approach to growth and public finances. They add to the latest signs that inflationary pressures are moderating, after official data showed UK consumer price inflation fell sharply to 3 percent in January, approaching the Bank of England’s 2 percent target.
Food prices remain high but are rising at a slower pace. Annual food inflation eased to 3.5 percent in February from 3.9 percent in the previous month. Fresh food inflation, while surrounding food inflation, which includes products such as coffee, pasta, canned goods and other cupboard staples, fell to 2.3 percent, its lowest level in four years.
The BRC said lower global commodity costs were filtering through supply chains, helping to stabilize grocery prices. However, it emphasized that competitive forces play an important role, especially in discretionary sectors such as fashion, health and beauty.
Prices of non-food items, including clothing, electronics and household goods, fell 0.1 percent year-on-year, compared with 0.3 percent growth in January. Heavy promotional activity in fashion and personal care, coupled with soft demand due to unseasonal weather and weak sentiment, contributed to the decline.
Helen Dickinson, chief executive of the BRC, described the economic downturn as “welcome relief” but warned that the pressure was not yet gone. He mentioned that although the rate of price increase is moderate, many households continue to feel the difficulties from the high accumulated costs in the last three years.
Mike Watkins, head of marketing and business intelligence at NielsenIQ, said price behavior has changed significantly since the start of the year. “Competitive prices across food and non-food are helping to moderate inflation,” he said, although he cautioned that demand remains unpredictable as consumers continue to prioritize priorities and trade on value options.
The decline in retail prices follows a mixed economic climate. The government recently reported a record £30.4 billion budget surplus in January, driven by strong tax receipts and lower debt interest payments. Retail sales were also surprisingly high. However, unemployment has risen to a five-year high and economic growth remains sluggish, giving hope.
Traders also signaled future cost pressures. The upcoming implementation of the Employment Rights Act and higher employment costs may increase labor costs later this year. Industry leaders warn that if the second law significantly increases labor or compliance costs, businesses could be forced to pass some of those increases on to consumers.
Meanwhile, the slowdown in retail price inflation suggests that competitive retail markets and lower input costs around the world are helping to reduce housing costs. Whether that trend continues will depend on energy prices, wage fluctuations and the broader economic outlook in the coming months.
