UK high street retail prices to drop even further in 2016

UK consumers can look forward to 2016 with optimism, as prices in shops are expected to continue to decline this year, figures released on Wednesday 6 January showed.

According to the BRC-Nielsen Shop Price Index, prices declined 2% year-on-year in December 2015, continuing the deflationary trend that has seen prices fall for the last two years and eight months.

Food prices in the final month of 2015 were 0.3% lower than in the corresponding period 12 months earlier, while non-food deflation stood at 3%, a slight improvement from November's 3.3% decline.

The drop in non-food prices was attributed to price reduction across a number of sectors, including gardening, footwear, clothing, DIY and electricals.

With the fall in prices forecast to continue, given oil and other commodities are unlikely to recover from the sharp decline suffered over the last 18 months, analysts expect customers to enjoy a remarkable "run of good fortune".

"This is an incredible run of good fortune for shoppers who've been preoccupied with picking up presents for family and friends, as well as themselves, ahead of the holiday season," said Helen Dickinson, chief executive of the British Retail Consortium.

"With retailers continuing to invest in price, relatively low commodity prices and intense competition a hallmark of the industry, we can expect falling prices to continue in the medium term."

Mike Watkins, head of retailer and business insight at Nielsen, added the unusually warm weather over the last few months will see retailers implement promotions earlier than usual, which in turn would benefit customers.

"We can expect the current levels of deflation across the retail industry to continue for the first half of 2016," he said.

"There is little upward inflationary momentum from global commodity or oil prices and locally, the price war in food retailing looks set to continue.

"After the unseasonably mild autumn and early winter, many non-food retailers will use price cuts and targeted promotions early in the year, to help sell-through and to benefit from any rise in real wages."