UK shop prices rise at slowest rate since May 2022: BRC

Prices in British shops increased at the slowest annual pace since May 2022 this month, according to the British Retail Consortium (BRC), indicating a reduction in inflationary pressures leading up to this week's Bank of England (BoE) policy decision.

The BRC reported that shop price inflation declined to 2.9 per cent in January from 4.3 per cent in December, driven by more extensive discounting during January sales compared to the previous year. 

Non-food prices saw a modest increase of 1.3 per cent, the lowest since February 2022, while food prices rose by 6.1 per cent year-on-year, the smallest increment since June 2022. This was attributed to reduced prices for tea and milk, partially offset by higher alcohol duties.

Mike Watkins, head of retailer and business insight at NielsenIQ, noted that lower wholesale costs enabled supermarkets to reduce prices on certain goods. 

However, consumer demand remains fragile due to ongoing inflationary pressures over the past two years.

While Britain's headline consumer price inflation rose to 4.0 per cent in December from 3.9 per cent in November, it marked the lowest level since September 2021. 

Despite this, inflation has decreased faster than the BoE's initial November forecast, primarily due to a major decline in energy costs. 

Many economists anticipate the central bank to revise down its near-term inflation projections during its upcoming interest rate decision on Thursday.

However, with inflation still exceeding the BoE's target, the central bank is unlikely to consider cutting interest rates from their current level of 5.25 per cent, the highest in nearly 16 years. 

Financial markets anticipate a potential quarter-point cut in interest rates in May or June. The BRC data was based on prices collected between January 1 and January 7.

(With Reuters Inputs)