UK shop price inflation fades in August amid interest rate talk

(Alliance News) - UK shop price inflation decelerated further in August, new figures on Tuesday showed, giving some "food for thought" to the Bank of England.

AJ Bell investment director Russ Mould said that the news of easing shop price inflation is being taken as a "positive sign."

According to the latest British Retail Consortium-NielsenIQ tracker, the annual shop price inflation rate cooled to 6.9% in August from 8.4% in July. This was below the three-month average of 8.0% and the lowest rate since October 2022.

Food inflation slowed to 11.5% in August from 13.4% in July, while non-food inflation remained at 4.7%.

On a monthly basis, shop prices rose 0.5% in August, following a 0.1% decline in July.

"Better news for consumers as shop price inflation in August eased to its lowest level since October 2022. This was driven by falling food inflation, particularly for products such as meat, potatoes and some cooking oils. These figures would have been lower still had the [UK] government not increased alcohol duties earlier this month," said BRC Chief Executive Helen Dickinson.

Victoria Scholar, head of investment at interactive investor, explained that supermarkets have been cutting prices in a "bid to attract customers amid the weak macroeconomic backdrop and bad weather conditions which have lowered consumers' propensity to spend".

Meanwhile, Hargreaves Lansdown's Susannah Streeter said the figures will be "food for thought for Bank of England policymakers who will decide where interest rates will go".

"This data alone is unlikely to move the dial much, as they are still concerned about high wage growth potentially encouraging big spending further down the line, but it's fresh evidence to show demand is dropping on the retail landscape," Streeter added.

Currently, markets are still pricing in another two interest rate hikes. But Streeter said, "We're in a fluid situation and forecasts keep being reassessed."

Over the weekend, analysts digested some hawkish words from the Bank of England's deputy governor.

In a speech on Saturday, the BoE's Ben Broadbent said monetary policy may need to stay in "restrictive territory for some time yet", amid the potential of second-round inflation effects.

Threadneedle Street has dug deep with 515 basis points worth of hikes in the current cycle. Earlier in August, it lifted the benchmark bank rate to 5.25% from 5.00%. The next BoE decision is on September 21.

By Sophie Rose, Alliance News reporter

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