Retail prices rise of just 1.1% offers relief for consumers
Monthly BRC survey shows cheaper oil and food helping stores keep costs down and offer bargains
Larry Elliott and Hilary Osborne
Price rises in Britain’s high streets are running at their lowest level for two and a half years as falling commodity prices and weak consumer demand keep inflation in check.
The monthly survey from the British Retail Consortium showed that cheaper oil and food are helping stores keep costs down and offer bargains to cost-conscious shoppers.
Stephen Robinson, the director-general of the BRC, said news that shop prices overall rose by just 1.1% in the year to June was “good news all-round for hard-pressed consumers”. Food prices rose by 3.5% in the 12 months to June, while non-food items continued their run of year-on-year declines and were 0.3% lower last month than in June 2011.
“Crude oil prices are down a quarter on three months ago, with food commodities, such as coffee and sugar, falling sharply over the same period. In a highly competitive market, retailers are rushing to reflect those drops in good deals for customers. At the same time, weak consumer demand continues to drive deep and heavily targeted discounting, particularly among non-food goods,” said Robinson
Signs that price pressures are abating will make it easier for the Bank of England to justify a widely predicted increase in its quantitative easing programme on Thursday. The Bank has already pumped £325bn into the economy since early 2009, and the City is braced for at least £50bn of additional gilt purchases to be announced by Threadneedle Street’s nine-strong monetary policy committee.
The Bank was given added cause to consider a fresh stimulus on Tuesday when the latest snapshot of the construction sector revealed a marked deterioration in business conditions and heightened fears of a deepening of the UK’s double-dip recession in the second quarter of 2012.
The CIPS/Markit Purchasing Managers’ Index dropped from 54.4 to 48.2 in June – below the 50 level that separates a sector that is expanding from one that is contracting.
Weakness in construction was a big factor behind the economy’s 0.3% decline in the first three months of 2012 and analysts warned that the latest data pointed to another quarter of falling output.
David Tinsley, UK economist at BNP Paribas, said the evidence from the PMI was that construction was contracting at its fastest rate in two and a half years, but that the extra bank holiday to mark the Queen’s diamond jubilee probably played a part.
“The weather may also be playing a part – it’s close to being the wettest June in England since 1910. Still reports also suggest weaker underlying business conditions, with civil engineering and housing the worst performing areas.”
The Bank’s figures for mortgage approvals showed that the end of the stamp duty holiday for first-time buyers on properties worth between £125,000 and £250,000 at the end of March has led to a tailing off in the demand for home loans.
There were 51,098 mortgage approvals for house purchase in May worth £7.6bn – the lowest figure since March and significantly down on a 25-month high in January, while the number of approvals for remortgaging also fell back in May, to 29,244 loans worth £4bn – the lowest number of loans since February.
The amount of unsecured credit taken on by consumers leapt to £732m in May, driven by a sharp rise in borrowing through overdrafts and personal loans, according to figures from the Bank, but one expert warned that the near-doubling from April’s £379m might be the result of consumers struggling to make ends meet.
Joanna Elson, chief executive of the Money Advice Trust, said: “With inflation continuing to outstrip earnings growth, it takes more and more of our income to put food on the table, travel to work and power our homes. As a result, people have cut back on their spending significantly. However, some find they can’t cut back any more, and are borrowing to bridge the gap.”
Last month’s rise in unsecured borrowing was fuelled by new borrowing on overdrafts and loans, which increased by £603m over the month, while credit card borrowing rose by just £70m. Even so, the increase was below the £1.1bn monthly average since 1993.