Shop prices tumble as cash-strapped customers rein in their spending

Discounting from struggling retailers in February triggered outright deflation across swathes of the high street for the first time in more than two years, the British Retail Consortium (BRC) said yesterday.

The BRC's latest shop price index painted a grim picture of hard-pressed consumers willing to spend money on essentials like food but little else. Prices among non-food retailers were down 0.7 per cent year-on-year – the first instance of outright decline since November 2009 – with clothes, electrical goods and furniture all cheaper than this time last year.

The slide drove shop price inflation down from 1.4 per cent to 1.2 per cent in February, the lowest for nearly two years. Higher petrol costs were blamed for rising food prices, which rose 4.2 per cent year-on-year in February.

Stephen Robertson, the BRC's director general, said: "While fuel and utility bills are eating up an ever-bigger proportion of household budgets, many goods sold by retailers now cost less than they did a year ago."

Mike Watkins, senior manager of retailer services at Nielsen, added: "Promotional activity has been sustained over the last three months as consumer confidence remains fragile. Households are coping with falling disposable income as fuel and energy costs are still rising, so retailers are having to work hard to encourage customers to spend."

The survey will also give food for thought to the Bank of England's rate-setters, who will mark three years with interest rates at their current record low of 0.5 per cent this week.

There is mounting alarm among some members of the Bank's Monetary Policy Committee over the recent spike in oil prices above $120 a barrel, but the BRC's index is a sign that price pressures are far more muted elsewhere.

Mr Robertson also took the opportunity for a swipe at the Chancellor, George Osborne, who is poised to hit retailers with a hike in business rates next month. He said: "When shop prices are up by just 1.2 per cent there's even less justification for the eye-watering 5.6 per cent business rates rise planned for April. Reducing this huge hike in trading costs should be a priority for the Budget."