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Retail prices fall for the first time in nearly three years amid heavy discounting

August 27, 2024

Retail prices in the UK have dropped for the first time in nearly three years, as retailers heavily discounted summer stock, particularly in fashion and household goods sectors.

According to the latest data from the British Retail Consortium (BRC) and NielsenIQ, prices in August fell by 0.3% compared to the same period last year, a sharp turnaround from the 0.2% inflation recorded in July. This marks the lowest rate of retail price changes since October 2021.

Helen Dickinson, Chief Executive of the BRC, said that the decline was due to ‘significant discounting by non-food retailers, following a challenging summer marked by poor weather and the ongoing cost of living crisis’. The non-food category saw a year-on-year price drop of 1.5%, the lowest rate since July 2021, as retailers sought to offload unsold summer merchandise.

Food prices also saw a moderation in their rate of increase. The annual food price inflation slowed to 2% in August, down from 2.3% in July. Fresh food prices experienced the most significant slowdown, with inflation easing to 1%, the lowest since December 2020, driven by reduced supplier input costs. Meanwhile, inflation in ambient food items, which can be stored at room temperature, decelerated slightly to 3.4% from 3.6%.

Despite these reductions, Dickinson expressed caution, saying: ‘the outlook remains uncertain, with climate change impacting global harvests and rising geopolitical tensions potentially leading to renewed inflationary pressures in the coming year.’

Retail sales in the UK rebounded in July, supported by increased discounting and higher spending in department stores and on sports equipment, after wet weather earlier in the summer deterred shoppers. The Office for National Statistics (ONS) reported a 0.5% rise in the volume of goods purchased between June and July, following a 0.9% contraction the previous month.

Liz McKeown, Director of Economic Statistics at the ONS, noted that the rebound was driven by sales in department stores and sports equipment shops, with both the Euros football tournament and discounting playing key roles. Department store sales grew by 4%, while sports equipment, games, and toy stores saw a 3.5% increase. However, sales at clothing and household goods shops fell by 0.6%, and fuel sales dropped by 1.9%, despite lower pump prices.

Overall, while the quantity of goods purchased last month remains 0.8% below pre-pandemic levels, household spending has increased by 19% since February 2020, reflecting the enduring impact of high inflation on consumer purchasing power.