UK Shop Prices Slide By Fastest Pace on Record

UK shop prices have slid by the fastest ever pace ever record, and for the third straight month in July, as retailers delivered deep discounts and promotions to provide relief for "hard pressed" families.

A report by the British Retail Consortium (BRC) and market research consultancy Nielsen shows that overall shop prices declined 0.5% annually in July, compared to a 0.2% decline in June. This was the biggest drop since the BRC began measuring them six-and-a-half years ago.

Food inflation fell to 2.2% in July - the lowest rate since summer 2010 - from 2.7% in June. Non-food reported annual deflation of 2.1% in July, up from 1.9% in June.

"Shop prices have now fallen for three consecutive months compared with last year and July's rate showed the biggest drop for six and a half years," Helen Dickinson, BRC director general said in a statement.

"This is great news for hard pressed families whose budgets have been squeezed by rising utility bills, transport and other costs. It shows just how hard retailers are working to serve their customers and underlines how deep the promotions and discounts from retailers are at the moment."

Dickinson noted that clothing and footwear across women's, men's and children's categories saw significant discounting during the month.

Researchers observed that the recent hot weather had given retailers a chance to step up the level of discounting of seasonal items.

The slowdown in shop price inflation is expected to revive consumer demand in the country in line with the ongoing economic recovery.

"Whilst the 2013 heatwave is bringing strong sales uplifts for food retailers it's holding back some non-food sales growth, so the welcome slowdown in shop price inflation in July should benefit most retailers and help to kick start consumer demand as we enter the peak holiday period," said Mike Watkins, head of retailer and business insight at Nielsen.

The BRC added that it expects shop prices to remain fairly stable in the medium term, given the supply chain stay without shocks

Spending and Economic Growth

Last week's official data showed Britain's economy gathering pace in the second quarter, driven by better spending by consumers and businesses.

The BRC data comes as a relief to the Bank of England as it tries to keep a lid on inflation. The consumer price index rose to 2.9% in June from 2.7% in May. However, policymakers expect the index to fall back by the end of the year with the decline in commodity prices.