Shop price inflation has plummeted to its lowest level in over two years, signalling a potential path for the Bank of England to slash interest rates in the coming months, recent reports reveal.
According to data from the British Retail Consortium and NielsenIQ, the annual rate of price growth in stores decelerated to 1.3% last month, a significant drop from February’s 2.5%. This marks the slowest pace of increase since December 2021. Additionally, on a monthly basis, shop prices experienced a decline of 0.4%.
Food prices, which had maintained double-digit inflation for a year, saw a notable reduction to 3.7% from 5%, marking the lowest rate since April 2022. On a monthly scale, food prices even contracted by 0.3%.
Helen Dickinson, Chief Executive of the British Retail Consortium, highlighted the intense competition among retailers, resulting in a downward pressure on prices for consumers. Despite higher global cocoa and sugar prices affecting Easter treats, retailers offered attractive deals on popular chocolates, contributing to price declines compared to the previous month.
These figures suggest a further decline in official headline inflation estimates, raising expectations of an imminent interest rate cut by the Bank of England, potentially for the first time since March 2020. Market forecasts anticipate multiple rate reductions this year from the current 16-year high of 5.25%, with expectations of action starting at either the June or August meetings of the ratesetting monetary policy committee.
Analysts foresee headline inflation returning to the official 2% target this spring, aided in part by the introduction of a lower energy price cap this month, with expectations that it will remain stable in the foreseeable future. Coupled with sluggish economic growth, this scenario would intensify pressure on the Bank of England to adopt looser monetary policy.
The minutes from the MPC’s recent meeting in March indicated a growing inclination towards a rate cut, with the committee acknowledging the potential for policy to remain restrictive even with a reduction in the bank rate. This suggests the MPC’s confidence in maintaining a tight policy stance while addressing persistent inflation concerns.
Non-food inflation also witnessed a significant drop to 0.2% annually in March, down from 1.3% in February. Mike Watkins, Head of Retail and Business Insight at NielsenIQ, attributed this slowdown in inflation to a substantial fall in food prices, driven by intensified competition among supermarkets aiming to boost footfall.
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Shop Price Inflation Hits Two-Year Low, Fuelling Expectations of Interest Rate Cut