Bloomberg News

U.K. Retail Inflation Unchanged as Shops Absorb Higher Costs

October 04, 2011

Oct. 5 (Bloomberg) -- U.K. shop-price growth was unchanged in September as supermarkets absorbed costs to attract shoppers squeezed by rising fuel and utility prices, the British Retail Consortium said.

Retail prices rose 2.7 percent from a year earlier, the same pace as in August, the trade group and Nielsen Co. said in an e-mailed report in London today. On the month, prices gained 0.2 percent. A separate report from KPMG LLP showed hiring of both permanent and temporary staff grew at the slowest pace in more than two years last month.

The Bank of England has predicted that inflation will accelerate to 5 percent before slowing next year as the impact of higher commodity prices, a declining pound and an increase in sales tax earlier this year fade. Retailers such as Tesco Plc, the U.K.’s No.1 supermarket chain, are cutting prices as consumers scale back spending in the face of weak wage growth and a faltering economic recovery.

“The pressures on prices from world commodities, import inflation and January’s value-added tax rise haven’t gone away, but they haven’t worsened either,” BRC Director General Stephen Robertson said in the report. “Fundamental conditions are unlikely to change much this side of Christmas.”

Annual food-price inflation was 5 percent last month, the same as in August, while non-food prices climbed 1.3 percent, down from 1.4 percent.

Price Cuts

U.K. consumer confidence is weakening as unemployment rises and inflation quickens. Consumer-price growth was 4.5 percent in August, more than double the Bank of England’s 2 percent target. A retail-sales index fell to its lowest level in 16 months in September, the Confederation of British Industry said last week.

Tesco said on Sept. 22 it will lower prices on 3,000 essential items such as milk, fruit and vegetables as it seeks to attract cash-strapped shoppers. “Across the country, families are telling us the same thing -- their budgets are under real pressure,” Tesco’s U.K. chief Richard Brasher said.

The faltering recovery and threats from Europe’s debt crisis prompted most Bank of England policy makers to say last month that more stimulus for the economy is “increasingly probable.” Nine of 30 economists in a Bloomberg News survey say the central bank will resume its emergency bond-purchase program tomorrow. The rest say it will hold the plan at 200 billion pounds ($308 billion).

All 53 economists in a separate survey see no change in the key interest rate, which is at a record low of 0.5 percent. The announcements will be made at noon in London.

In their report, KPMG and the Recruitment and Employment Confederation said an index of hiring of full-time staff dropped to 51.2 in September from 52.4 the previous month. A measure of demand for temporary staff dropped to 50.9 from 52.5. Both readings were the lowest since August 2009. A result above 50 indicates an increase.

--Editor: Fergal O’Brien, Andrew Atkinson

To contact the reporter on this story: Scott Hamilton in London at shamilton8@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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