For the first time since the cost of living crisis began nearly three years ago, shop prices in the UK have fallen as retailers offer discounts on clothing and homewares to get rid of unsold summer stock.
New data shows that prices fell by 0.3 percent in the first week of August compared to the same period last year. In contrast, there was an increase of 0.2 percent in July and the three-month average price increase was 0 percent.
This is the first case of price deflation – where the cost of goods and services falls – since October 2021.
The decline was largely due to lower non-food prices as retailers strategically discounted their products. Clothing and footwear were among the most discounted, with prices falling for the eighth consecutive month in August due to slowing demand. Electronics products also contributed to deflation as tech prices began to fall again after several years of increases.
When retail prices fell in August, GBP/USD exchange rate felland slipped below 1.3200 on Monday, ending a seven-day winning streak that saw the pair rise more than 3% from 1.2800 to a 29-month high of 1.3230.
While the price drop may offer a glimmer of hope for households struggling with the ongoing cost of living crisis, it is only a small relief as food prices continue to weigh on household budgets, rising 2% in August. However, this was the slowest increase since November 2021.
Headline inflation reached 2.2% in July, above the Bank of England’s 2% target but below estimates. Bank of England Governor Andrew Bailey warned that inflation could rise again by the end of the year, posing potential risks. The probability of a Bank of England rate cut in September is estimated at just 30%, while the probability of a rate cut later in the year is 50%. In contrast, a Fed interest rate cut in September is considered safe. The pound has now gained 4.5 percent in the last 13 trading days and was only in the red on two days.
This article was created in collaboration with TradingView
