Shop price inflation across the United Kingdom slowed further in July, reaching its lowest level in more than a year, according to the latest figures from the British Retail Consortium and market research firm NIQ. Prices in British stores were 0.9 per cent higher than in the same month last year, down from the 1.2 per cent annual rate recorded in June. The reading marks a continued easing of cost pressures for consumers, though retailers have cautioned that the relief may be temporary as several structural cost challenges loom on the horizon.
The data, which tracks price changes across both food and non-food categories, showed that non-food items recorded deflation for the second consecutive month, falling by 0.9 per cent year on year in July. This decline helped pull the overall headline figure lower. Food inflation, while still positive, also moderated to 2.3 per cent from 2.5 per cent in June, driven by fierce competition among supermarkets and lower prices for fresh produce such as fruit and vegetables. The British Retail Consortium noted that retailers have been absorbing some of the rising input costs to keep prices attractive for cash-strapped shoppers.
However, the BRC and NIQ both warned that the positive trend may not persist. Global shipping disruptions, particularly in the Red Sea region, have pushed up freight costs significantly, and these are expected to feed through to supply chains in the coming months. Additionally, the UK labour market remains tight, with retailers facing higher wage bills following increases in the national living wage and persistent shortages of staff in warehousing, logistics and store operations. Commodity prices for key inputs such as cocoa, sugar and coffee have also risen, adding to the pressure on margins.
Helen Dickinson, chief executive of the British Retail Consortium, said that while shoppers have benefited from lower price tags in recent months, the outlook for the rest of the year is uncertain. She pointed to geopolitical tensions, adverse weather affecting harvests in key producing regions, and the lingering impact of higher energy costs on production and transportation. Dickinson urged the new government to focus on reducing regulatory burdens and business rates to help retailers maintain low prices for consumers.
Mike Watkins, head of retailer and business insight at NIQ, added that consumer confidence remains fragile despite the easing of inflation. Households are still cautious with their spending, prioritising essentials and seeking out promotions and own-brand products. The slowdown in shop price inflation provides some breathing room for household budgets, but the broader cost of living crisis is far from over. Watts said that retailers will need to continue to innovate on value and efficiency to stay competitive.
The July figures come as the Bank of England closely monitors inflation trends ahead of its next interest rate decision. Official measures of consumer price inflation have also been declining but remain above the central bank's 2 per cent target. Analysts suggest that the slower pace of shop price inflation could give policymakers some confidence that domestic price pressures are gradually easing, but the recent uptick in shipping and labour costs may complicate the path to stable prices.
For consumers, the immediate takeaway is that the rapid price increases seen over the past two years are continuing to moderate. Items such as clothing, footwear, electrical goods and furniture have become cheaper compared with last year, while food prices, though still rising, are doing so at a more manageable rate. The British Retail Consortium said that competition in the grocery sector remains intense, with all major supermarkets running aggressive loyalty discount schemes and price-matching campaigns to attract shoppers.
Looking ahead, the trajectory of shop price inflation will depend on how quickly the higher costs in global supply chains pass through to retail prices. Many retailers have hedged their currency and freight exposure for the near term, but those contracts are beginning to expire, leaving them exposed to current market rates. If the cost pressures persist, the current period of subdued inflation may be short-lived. The BRC said it will continue to monitor the situation and update its members and the public as conditions evolve.
