Pound's slump 'pushing up shop prices'

The pound's slump is beginning to push up some shop prices, retailers said today.

Overseas demand for beef due to the fall in sterling drove a 1.8 per cent month-on-month rise in food prices during January, the British Retail Consortium (BRC) said.

Although most non-food goods were cheaper than last year, the impact of the struggling currency was filtering through to higher import costs and slowing the rate of price falls, the BRC added.

The pound has slumped in value by almost a third against the dollar in the past six months - falling to a 24-year low of $1.35 when the UK's recession was confirmed two weeks ago.

According to the BRC's figures, the annual rate of food inflation reached 7.5 per cent in January, compared with 6.2 per cent in December.

This pushed overall annual shop price inflation up to 1.1 per cent from 0.5 per cent last month, although non-food goods were 2.1 per cent cheaper than a year earlier.

Retailers were "taking a hammering" as they attempted to hold down prices for hard-pressed shoppers, BRC director-general Stephen Robertson said.

But he added: "The effects of the weak pound are starting to filter through to the costs of imports, slowing the rate of price falls for some non-food goods and contributing to pushing up the prices of some food products.

"In particular the fall in sterling has increased overseas demand for UK beef and pushed up the price of some imported commodities."

IHS Global Insight economist Howard Archer said the evidence of rising prices was unlikely to deter the Bank of England from cutting interest rates to a record low of 1 per cent tomorrow, as inflation concerns are outweighed by the impact of a prolonged recession.

"Most data and survey evidence continue to point to inflationary pressures waning markedly, while the economy is still clearly in deep recession," he said.