Shop prices fell for the second consecutive month as retailers dialled up their January promotions, according to the monthly BRC-NIQ shop price index. However, the report warned price cuts and deflation will soon end as retailers begin to feel the “full impact” of the autumn budget.
Overall, the rate of shop price deflation eased, to 0.7% in January – slightly slower than the 1% deflation in the previous month.
It was fuelled by a fall in the rate of food inflation, which fell by 0.2% to 1.8%.
Both ambient and fresh food remained in deflation, albeit slower at 0.9% down from 1.2%, and 2.5%, 0.3% slower than December, respectively.
Despite falls in the rate of inflation overall, food prices continue to rise at their fastest rate since April 2024, with ambient food prices up 1% as a result of spikes in the price of sugary products, chocolates and alcohol.
It was a similar pattern for non-food, meanwhile, which remained in deflation at 1.8%, up from –2.4% in the preceding month. This was slightly above the three-month average rate of –2.0%.
“While overall prices fell in January, the pace of shop price deflation eased,” said BRC CEO Helen Dickinson.
“Extensive January sales were good news for bargain hunters, with non-food products showing significant discounts, particularly for furniture and fashion, but less good news for retailers needing to shift excess stock.”
Dickinson warned of tougher times ahead, however, “as retailers will soon feel the full impact of £7bn of new costs” announced by Chancellor Rachel Reeves in the autumn budget.
“Higher employer NICs, increased national living wage, and a new packaging levy mean prices are expected to rise across the board. Government can help to mitigate the impact on consumers by ensuring its proposed reforms to business rates do not result in any store paying more in rates than they already do. Without action, UK households will feel the effects.”
Mike Watkins, head of retailer and business insight at NIQ, 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,” Watkins added.
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