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UK shop prices fall 2.1% in March, as deflation settles in for "near future"

Published:  08 April, 2015

Retail deflation deepened to 2.1% in March, according to the latest BRC-Nielsen Shop Price Index, released this morning.

The new stats show the deepest deflation in the UK retail market increase since December 2006, down from 1.7% in February

Food prices deflation was 0.9% in March, down from 0.4% in February, the report said, with non-food deflation accelerated to 2.8% in March from 2.5% in February.

BRC Director General, Helen Dickinson, said food prices had dropped largely as a result of promotions for fresh food, whilst non-food prices hit a twenty-fourth period of consecutive month of deflation, falling at a faster rate than last month.

Consumer confidence has soared to a near 13-year high, she said and the consumer price index has fallen to zero for the first time on record. This, she said boosted incomes in real terms and had brought the UK to the brink of a spell of deflation that is expected in the coming months, The fall was largely the result of a deep slump in oil prices (down 49% on a year ago) and the fierce competition among supermarkets.

"There's evidence of plenty of promotions and price-cuts in non-food items which should help drive up sales at a time when retailers are turning their attention to the Summer ranges.

Mike Watkins, head of retailer and business insight at Nielsen, said price falls across the retail industry and deflation was likely to be with us for the "near future".

"The implication for food retailers is that this may help sustain the slowly improving sales volumes we have seen in recent weeks, and also encourage consumers to spend some of their savings on affordable indulgences," he said. "For many high street fashion, home and outdoor retailers, lower prices are being backed up by attractive promotions which comes at good time as momentum builds in selling late Spring and early Summer ranges." 

City analyst Clive Black of Shore Capital said living standards for a significant proportion of the workforce that have been under the cosh in recent years is quite materially rising

"Shore Capital foresees weaker UK consumer prices in forthcoming months with few upward drivers in the system," he said, "Additionally, supermarket discounting remains robust with price cuts evident in fresh food and proprietary brands plus still high levels of promotional participation.

However he noted that beverages were still inflationary albeit at a weaker rate.