LONDON – Shoppers in the United Kingdom have seen a welcome, albeit partial, reprieve from rising prices as shop price inflation eased significantly in the first week of October. The latest BRC-NIQ Shop Price Monitor revealed that overall shop price inflation slowed to 1.0% year-on-year, a notable decrease from 1.4% recorded in September. This deceleration offers some breathing room for hard-pressed consumers navigating persistent cost of living challenges.
Easing Inflation Driven by Competition and Discounts
The slowdown in overall shop price inflation was primarily attributed to fierce competition among retailers and widespread discounting strategies. As businesses vied for consumer spending, particularly in anticipation of the Black Friday sales event, significant price cuts were observed in categories such as electrical goods and health & beauty products. Non-food prices experienced deflation, falling by 0.4% year-on-year, an improvement from the 0.1% deflation seen in September.
While the general trend offered some relief, food price inflation remained a significant concern, though it also cooled. Overall food inflation decreased to 3.7% in October, down from 4.2% in September. However, this figure masks a continued acceleration in fresh food prices, which rose by 4.3% year-on-year, up from 4.1% in the previous month. This suggests ongoing cost pressures for essential fresh produce.
Looming Threat: Business Rates and Potential Job Losses
Despite the positive news on inflation, the retail sector faces a significant threat from potential increases in business rates. Industry bodies, including the British Retail Consortium (BRC) and UK Hospitality (UKH), have issued stark warnings about the consequences of proposed business rate changes, particularly a potential surtax on large retail properties.
The BRC and UKH have collectively warned that hundreds of large hospitality and retail venues could face closure if the government proceeds with plans to impose a new business rates surcharge on properties with a rateable value exceeding £500,000. This measure, intended to potentially offer relief to smaller businesses, could disproportionately impact larger retailers and hospitality venues.
These organisations estimate that such a surcharge could jeopardise approximately 120,000 jobs across the United Kingdom. The retail sector alone is facing an estimated £480 million hike in business rates if the multiplier increases with inflation, alongside the potential loss of existing reliefs which would cost the sector an additional £750 million. Retailers are concerned that this added financial burden will inevitably be passed on to consumers, counteracting the recent progress in reducing inflation.
Broader Economic Context and Retail Sector Strain
The current economic landscape in the United Kingdom remains challenging. While headline inflation showed signs of easing, overall consumer spending has been under pressure. Official figures revealed that retail sales volumes in Great Britain fell by 2.7% year-on-year in October 2023, with clothing and household goods stores being hit particularly hard. Retailers have also contended with increased operational costs, including higher national insurance contributions and new packaging taxes, contributing to the pressure to raise prices.
Helen Dickinson, Chief Executive of the BRC, has urged the Chancellor to use the upcoming budget to relieve pressures on the sector. She has stressed that any new taxes on retail businesses would inevitably prolong inflation and lead to store closures and job losses. The current business rates system is also seen by many as fundamentally flawed, with some arguing that it unfairly penalises bricks-and-mortar businesses.
A Mixed Outlook for Consumers and Businesses
In conclusion, while the easing of shop price inflation in October offers a glimmer of hope for consumers in the United Kingdom, the outlook for the retail sector remains uncertain. The reduction in prices is a direct result of intense competition and promotional activity. However, the looming spectre of increased business rates and other potential tax rises presents a significant threat to the viability of many businesses and the jobs they provide. The BRC-NIQ monitor provides crucial trending news on price dynamics, but the economic news for retailers is currently a mix of cautious optimism for consumers and grave concern for businesses facing mounting costs and potential policy decisions that could further strain the market.
