The British Retail Consortium has released its latest BRC-NielsenIQ Shop Price Index and with prices being measured from 1-7 January, it showed deflation was the key theme.

But some confusing messages are coming out of UK retail in general with retailers both forced to be promotional by cash-strapped shoppers but also needing to raise prices due to higher costs.

Year-on-year shop price deflation was 0.7% in January, but that was a smaller price drop than the 1% seen in the previous month. It’s interesting that shop price drops were bigger in the key pre-Christmas shopping month than in the current month when prices are traditionally cut.

That was even more noticeable for non-foods specifically where deflation of 1.8% compared to January 2024 was less of a price drop than the 2.4% deflation in December compared to December 2023.

Helen Dickinson, chief executive of the BRC, said that price deflation “was good news for bargain hunters, with non-food products showing significant discounts, particularly for furniture and fashion”. 

But she added that “price cuts and deflation may not last much longer as retailers will soon feel the full impact of £7 billion of new costs announced at the last Budget. Higher employer [National insurance Contributions], increased National Living Wage, and a new packaging levy mean that prices are expected to rise across the board.”

Meanwhile, Mike Watkins, head of retailer and business insight at NielsenIQ, said: “Shoppers continue to be unsure about spending and many are seeing a continued squeeze on their household incomes. So we expect non-food retailers to still promote and food retailers to still offer price cuts over the next few weeks, with shoppers managing their budgets by shopping smart and shopping around for wherever the savings are the most attractive.”

Britain’s headline rate of inflation fell to 2.5% in December but forecasts suggest it could rise to 3% again for this month. 

Whether it does or doesn’t, retailers remain under huge pressure on costs. That’s despite some strong reports of festive trading in recent weeks. One thing has become clear though — shops targeting those on a budget (such as Primark and Poundland) did less well in the UK this Christmas than those aimed at more affluent shoppers.