Prices in UK shops dropped in December, forecast to continue falling

According to the BRC-Nielsen Shop price Index, prices in UK shops dropped by 2% over the 12 months to December.

Non-food prices dropped 3 percent year-on-year in December, while food prices were 0.3% lower than 12 months previously.

BRC Chief Executive Helen Dickinson described the deflation of 2.0% in December from the 2.1% decline seen in November as 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.”

She added: “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.”

The decline in prices has gone on for two years and eight months now, driven by an intense price war among the UK’s ‘big four’ supermarkets and a strong pound making imports cheaper.

Analysts forecast that the trend will continue well into this year – as it’s unlikely oil will make a sudden rebound.

Dickinson said: “A number of key commodities in the retail supply chain (in particular, oil which is now trading under $40 per barrel) have fallen dramatically recently and the impact of these falls will continue to make its way through to shop prices for some time to come.”

Mike Watkins, Head of Retailer and Business Insight, Nielsen, commented:

“We can expect the current levels of deflation across the retail industry to continue for the first half of 2016. 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.”