UK shop prices fall faster but retailers warn of risks in budget

LONDON (Reuters) – Prices in British shops fell at the fastest pace in more than three years this month but this week’s budget announcement by finance minister Rachel Reeves could help spur a return of inflation, the British Retail Consortium said on Tuesday.

Annual shop price deflation dropped to 0.8% in the 12 months to October, the BRC said, its weakest since August 2021 and a bigger fall than September’s 0.6% decline.

It was the eighth time in nine months that the pace of price growth has weakened.

Food prices rose by 1.9% but non-food deflation held at 2.1%. Clothing prices edged up for the first time since January as retailers unwound some of their heavy discounting.

“Households will welcome the continued easing of price inflation,” BRC chief executive Helen Dickinson said.

“But this downward trajectory is vulnerable to ongoing geopolitical tensions, the impact of climate change on food supplies, and costs from planned and trailed government regulation.”

British finance minister Rachel Reeves is expected to include in her first budget on Wednesday an increase in social security contributions that businesses must pay for their staff, causing unease among some employers who are also nervous about labour market reforms to give more protections to workers.

“Retail is already paying more than its fair share of taxes compared to other industries,” Dickinson said and she called on Reeves to reduce the business rates tax paid by retailers.

Official figures showed consumer price inflation fell to 1.9% in September, well below a 41-year high of 11.1% it touched in October 2022. The Bank of England is expected to cut borrowing costs in November for only the second time in four years.