In a recent report by the British Retail Consortium (BRC), non-food prices in UK stores experienced a notable decline of 0.6% during the first week of April, marking the first instance of deflation in this category in over two years. This shift comes at a time when the Bank of England is contemplating a reduction in interest rates.
The BRC’s chief executive officer, Helen Dickinson, highlighted that these levels of shop price inflation are beginning to normalize, offering relief to households across the country. The last period of deflation in non-food items occurred between June 2019 and December 2021, followed by price increases driven by post-Covid spending trends, supply chain disruptions, and the recent geopolitical tensions arising from Russia’s invasion of Ukraine.
Key players in the UK retail sector have also noted a significant easing of price pressures in recent weeks. Simon Wolfson, the CEO of Next Plc, characterized the current state as the beginning of a “new era” for the high street fashion outlet in a confident update released last month. Similarly, the owner of discount chain Primark, George Weston of Associated British Foods, expressed optimism about future sales volumes amid rising salaries outpacing inflation.
Although overall shop prices rose by 0.8% according to the BRC’s data, driven primarily by a food inflation rate of 3.4%, these figures reflect a moderation compared to the previous month’s rates of 1.3% and 3.7% respectively.
The latest data strengthens expectations that the Bank of England will decrease its key lending rate from a 16-year high of 5.25%. However, markets currently anticipate only two rate reductions this year. The BOE’s policymakers are scheduled to convene next Thursday to make decisions regarding interest rates.
Additionally, a separate survey published by the Confederation of British Industry (CBI) on Tuesday indicated a reduction in inflationary pressures within the services sector, particularly in areas such as business and professional services. This broader trend aligns with the evolving economic landscape and could further influence monetary policy decisions in the coming months.
