UK shop price index falls in August, weaker pound likely to support retail prices

The United Kingdom’s shop price index fell during the month of August, following weakness in global crude oil prices; however, a depreciating domestic currency is likely to lend support to retail prices in the near term.

UK’s shop prices fell 2.0 percent in August compared with 1.6 percent in July, data released by the British Retail Consortium (BRC) showed Monday. The fall in prices was driven by promotions from retailers as well as a drop in the cost of oil.

Further, food price deflation hit a record low of 1.1 percent in August, compared to 0.8 percent in the previous two months, representing the biggest year-on-year fall since when the index started in 2006. Fresh food prices dropped 1.5 percent and ambient food prices fell 0.6 percent. Non-food deflation reached 2.5 percent in August, up from 2.2 percent in the previous month.

"The share of spend on food goods on promotion continued to fall, down to 28 percent, as retailers move to permanent price cuts instead of multi-buy and other promotional offers," the BRC said.

Meanwhile, given the strength of competition in the market, and if the economy softens in line with predictions, any pass through may be more limited than implied by the exchange rate movement, reports said.