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Prices fall at retail as consumers spend less

August shop prices fell by 0.4% compared to a 0.1% decrease in July, according to latest figures from the BRC and Nielsen.

This is below the 12- and 6-month average price increases, both of 0.3%, and is the fastest rate of decline since June 2018.

Non-Food prices fell by 1.5% in August compared to July’s decrease of 1.2%. This is below the 12- and 6-month average price declines of 0.6 and 0.7%, respectively. It is the fastest rate of decline since June 2018.

Food inflation eased slightly to 1.6% in August from 1.7% in July. This is below the 12- and 6-month average price increases of 1.8% and 1.9%, respectively.

Fresh Food inflation accelerated in August to 1.4% from 1.2% in July. This is below the 12- and 6-month average price increases of 1.4% and 1.5%, respectively.

Ambient Food inflation slowed significantly to 1.8% in August from 2.4% in July. This is below the 12- and 6-month average price increases of 2.3% and 2.6%, respectively.

Overall prices were pushed further into deflationary territory by Non-Food goods that saw prices decline at a faster pace in August. Out of the seven Non-Food categories, three were deflationary.

The BRC says weak consumer spend and intense competition kept price increases well at bay, with many retailers using discounts, especially for basic items (which are oversampled in our index). Case in point, prices for five categories – DIY, Furniture, Clothing, Electricals and Other Non-Food, are below their August 2015 prices.

Inflationary pressures are receding for some Food categories too. Promotional activity by supermarkets slowed down the rate of price increases for Non-Alcoholic Beverages, Sugar & Confectionary and Bread & Cereals. Meanwhile prices of some Fresh goods declined in response to market developments. For instance, meat prices have been falling for a fourth consecutive month in August, as declines in global meat prices late last year have been feeding through into final consumer prices.

Helen Dickinson OBE, Chief Executive, British Retail Consortium, said:
“Consumers were the real winners this month as prices fell at their fastest rate in over a year. Prices of non-food goods fell at a faster rate than both the previous month and the 12-month average, while food inflation eased slightly due to higher levels of discounting from supermarkets.
“Weak consumer spending and stiff competition has kept prices down in the UK, however a disruptive no-deal Brexit, which would raise the cost of imported goods, could reverse this trend. In the interests of both consumers and retailers, the Government must redouble its efforts to find a workable agreement with the EU that would avoid a no deal scenario.”

Mike Watkins, Head of Retailer and Business Insight, Nielsen, said: “August is often a difficult month for retailers made more challenging this year by unseasonable weather early in the month, and we have seen the return of vouchering by many supermarkets and some non-food retailers bringing forward end of season discounts to help drive sales. Consumers remain uncertain about when and where to spend but the good news is that any inflationary cost pressures that may be building in the food supply chain, have not yet reached shop prices.”

Figures set to reveal summer boost for UK economy

Analysts are predicting that official figures due to be released on Friday by the ONS will show UK economic growth rebounding in the second quarter.

The consensus among economists is forecasting that GDP growth will have hit 0.4% between April and June, following a slump to 0.2% in the first three months of the year.

It’s very much a case of the summer sun encouraging consumers to spend money after what was a long, cold Brexit-infused winter.

Andrew Goodwin, the lead UK economist at Oxford Economics, said: “The month-on-month outturns for GDP in April and May were strong, at 0.2% and 0.3% respectively, largely because of a rebound after March’s snow-related disruption and a couple of very strong months for retail sales.

“But, with retail sales edging down in June, the service sector is likely to provide less impetus and ensure a weaker outturn for monthly GDP growth of around 0.1%. However, this would still generate quarterly growth of 0.4% for Q2 as a whole.”

Investec too are expecting that June GDP growth will struggle to match May’s, which has the extra boost of a royal wedding and two bank holidays.

“Principally, the expansion in construction output is almost certain to have moderated from May’s two-year high,” said Investec analyst Victoria Clarke. “The services sector may also have seen a more moderate pace of growth, as we have already seen in the retail sales figures. In contrast, we expect activity to pick up in the industrial sector.”

BRC urges UK government to support consumer spending in Budget

British Retail Consortium (BRC) has proposed a series of recommendations to support UK retailers, while urging Chancellor Philip Hammond to support consumer spending in the upcoming budget.

Freezing the business rates multiplier, keeping the cost of living down by not increasing income tax rates, improving basic digital literacy, investment in infrastructure at ports and borders and ensuring retailers don’t face double regulatory charges from EU withdrawal are just some of the recommendations put forward by the BRC.

Helen Dickinson, chief executive of the BRC said: “Without the chancellor’s intervention, the consequences for town centres and jobs will be even more keenly felt in the most vulnerable communities. For consumers, the squeeze on household incomes will be compounded as the pound in their pocket buys them even less at the checkout.

“Retailers want to help build the confidence of their customers, us all as shoppers, not damage it. But to do this they need the support of government policy that keeps down the cost of living, not exacerbates it. That encourages, rather than deters the retail investment necessary to meet constantly evolving customer expectations. And finally, policy action that enables retailers to maximise their vital contribution to the government’s productivity aspirations.”