'Volatility over' for shop prices

Shop price inflation slowed last month, signalling an end to the "volatility" in the retail sector.

According to June's shop price index, overall inflation fell to 1.5% in comparison to the same month last year. This is down from the 1.8% rise on the year recorded in May.

The British Retail Consortium (BRC) and Nielsen, who jointly produce the measure, said that the easing in prices had been in part due to cheaper seasonal food, and also due to retailers cutting prices and pursuing customers with World Cup promotions.

Food inflation fell particularly, down from 2.2% in May to 1.7% last month, while non-food prices slowed to 1.4%, down from 1.6%.

The deceleration in shop price inflation is likely to have been a factor in the decision by the Bank of England's Monetary Policy Committee to keep interest rates at their historic 0.5% low.

Stephen Robertson, BRC director-general, said that greater stability is now expected over the coming months, with a period of low, predictable inflation likely to set in for the rest of 2010.

"The era of shop price volatility seems over for now," he added.

"The fluctuations in commodity costs and exchange rates over the last 18 months have now fed through.

"Barring any major shocks, we're not expecting sharp movements in price.

"In the face of weak demand, retailers will continue to use widespread discounts and promotions."

However, Robinson highlighted a potentially difficult start to 2011, pointing to retailers' "thin margins" and predicting that there will be "little scope" for them to absorb the 4 January VAT increase, from 17.5% to 20.0%.

"This will put significant pressure on inflation from January onwards," he added.

Recovery measures

The news comes as other measures seem to point to continued growth in the UK economy.

According to the latest British Chambers of Commerce (BCC) economic survey, the year's second quarter saw further growth after the improvement in the first three months of 2010, with gains made in key indicators of sentiment among businesses, such as employment expectations, investment plans, domestic sales and export orders.

Despite this, however, the group warned of "underlying weaknesses in the economy" which could plunge the UK back into recession if left unchecked.

BCC director-general David Frost said that the results "should offer encouragement that the UK’s recovery remains on the right track", though acknowledged there were still concerns over "sluggish growth" in the service sector.

"The Government must continue to promote the best possible business environment, in order to help companies invest and grow.

"Furthermore, with around 80% of manufacturers reporting that they are under pressure to increase prices, there is potentially a big issue bubbling under the surface.

"With very austere times ahead, no one should kid themselves into thinking that the UK’s economic recovery is totally secure."

Meanwhile, despite news this week of dire employment prospects for this year's crop of graduates, the jobs market grew again in June - albeit slowly.

According to the latest Report on Jobs from the Recruitment and Employment Confederation, together with professional services provider KPMG, both permanent and temporary placements went up last month, though they are growing at the slowest level since the start of the year.

IMAGEby Bengt Olof Olsson/Scanpix/Press Association Images

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