Inflation in UK Shops Surges to Highest Level on Record

Undated file photo of a man holding a shopping basket in a supermarket. Julien Behal/PA Media

Inflation in British shops has risen to the highest level on record amid warnings of dampened Christmas cheer and a bleak winter ahead.

According to figures from the British Retail Consortium (BRC) and NielsenIQ, annual shop price inflation rose to 7.4 percent in November, up from 6.6 percent in October and marking another record since the BRC-Nielsen IQ Shop Price Index started in 2005.

Food inflation accelerated considerably further to 12.4 percent from October’s 11.6 percent—also the highest rate on record as rocketing costs of energy, animal feed, and transport forced up prices.

Fresh food inflation rose even higher to 14.3 percent, up from 13.3 percent last month, driven particularly by the cost of meat, eggs, and dairy.

Coffee prices “shot up” as high input costs filtered through to price tags, while Christmas gifting is also set to become more expensive than in previous years with sports and recreation equipment seeing particularly high increases, the BRC said.

Price inflation for non-food products also accelerated to 4.8 percent in November, up from 4.1 percent in October.

Members of the public walk along Oxford Street in London, on April 1, 2022. Dan Kitwood/Getty Images

‘Increasingly Bleak’

BRC Chief Executive Helen Dickinson said, “Winter looks increasingly bleak as pressures on prices continue unabated.”

“While there are signs that cost pressures, and price rises, might start to ease in 2023, Christmas cheer will be dampened this year as households cut back on seasonal spending in order to prioritise the essentials,” she added.

But she said retailers are doing “all they can to support their customers and ensure everyone can enjoy the festive season by fixing prices of many essentials, offering discounts to vulnerable groups, raising pay for their own people, and expanding their value ranges.”

Mike Watkins, NielsenIQ’s head of retailer and business insight, said: “With prices still rising, the cost of Christmas will be higher this year and shoppers will be managing their budgets more closely than at any time since the start of cost-of-living crisis.

“Retailers are now responding by offering seasonal savings and price cuts and will be hopeful of an uptick in shopper spend as we move into December.”

The City of London financial district can be seen as people walk along the south side of the River Thames, in London, on March 19, 2021. Henry Nicholls/Reuters

Soaring Inflation

According to official figures from the Office for National Statistics, the UK’s inflation rose to 11.1 percent in October, the highest in 41 years, driven largely by gas and electricity prices.

The average house energy bill was previously expected to jump by 80 percent in October. The government’s Energy Price Guarantee scheme absorbed around two-thirds of the rise, but households and businesses still saw an increase in their energy bills.

Increases in the prices of food, non-alcoholic beverages, and transport are also large contributors to the inflation.

The Organisation for Economic Cooperation and Development (OECD) said in a recent report that UK inflation will likely peak at the end of this year and remain above 9 percent into early 2023, before slowing to 4.5 percent by next year-end and to 2.7 percent by the end of 2024.

The report sees UK interest rates rising further from 3 percent currently to 4.5 percent by April 2023, while unemployment will lift from 3.6 to 5 percent by the end of 2024.

On Britain’s outlook, the OECD cautioned: “Risks to the outlook are considerable and tilted towards the downside. Higher-than-expected goods and energy prices could weigh on consumption and further depress growth.

“A prolonged period of acute labour shortages could force firms into a more permanent reduction in their operating capacity or push up wage inflation further.”

Recession

The OECD said the UK economy will contract by 0.4 percent in 2023, more than any other G-7 nation.

The UK is also the third-worst performing nation of all the G-20 countries worldwide, with only Russia and Sweden seeing a bigger decline in GDP, at 5.6 percent and 0.6 percent.

The OECD blamed the predicted downturn partly on the UK government’s energy support scheme, which caps average household energy bills at around £2,500 ($2,960) until April.

The report said the support package will push up inflation, forcing policymakers to raise interest rates further as they try to rein in price and wage rises.

The Office for Budget Responsibility (OBR) confirmed on Nov. 17 that Britain was officially in recession and that the previous eight years’ growth would be wiped out.

The OBR, in its assessment of the UK economy, said: “Rising prices erode real wages and reduce living standards by seven percent in total over the two financial years to 2023–24 (wiping out the previous eight years’ growth), despite over £100 billion of additional government support.

“The squeeze on real incomes, rise in interest rates, and fall in house prices all weigh on consumption and investment, tipping the economy into a recession lasting just over a year from the third quarter of 2022, with a peak-to-trough fall in GDP of two percent.”

The OBR also predicted unemployment would rise to 4.9 percent in the third quarter of 2024.

Lily Zhou and PA Media contributed to this report.