UK inflation experienced a slight decline in the previous month, but it remains at a high level. The consumer price inflation (CPI) for December stood at 10.5%, a decrease from November’s 10.7%. However, it’s important to note that this drop coincided with retailers offering significant discounts to attract Christmas shoppers. The Office for National Statistics has attributed the decline in CPI partly to lower clothing sales, suggesting that the pre-Christmas discounts played a major role in this decrease. Similar trends might continue in January, as it is the peak clearance period for retailers.

Looking ahead, there is uncertainty regarding what will happen in February when new spring collections arrive and some businesses implement price increases. Helen Dickinson, CEO of the British Retail Consortium, emphasized the impact of clothing prices on the December CPI figure. She pointed out that discounting before Christmas helped alleviate inflation in sectors such as clothing, footwear, furniture, and alcoholic beverages. In fact, clothing and footwear inflation stood at a modest 6.5% last month.

Despite a slight decline to 10.5%, as the CPI remains in double digits, it is anticipated that there will be further interest rate increases. This will affect costs for both consumers and businesses. Although energy commodity prices, like natural gas, may be lower than they were a year ago, they are still significantly higher than mid-2021 levels and continue to impact the economy.

Analysts predict that the retail sector will continue to face challenges throughout this year. Kevin Bright, Partner and Global Leader of the Consumer Pricing Practice at McKinsey, believes that the slight slowdown in inflation will not alleviate pressure on household budgets. Prices have increased by 16.5% over the past two years, while wages have not kept up with the rising prices. Sectors such as hotels, restaurants, recreation, clothing, and household product retailers will continue to bear the brunt of these effects.

Alpesh Paleja, the CBI’s Lead Economist, stated that these figures suggest the UK has likely reached its peak inflation. However, the cost-of-living crisis will persist for households and businesses due to high short-term price pressures. With the ongoing recession, firms will face increased costs and weak demand conditions. To address these challenges, the government must continue supporting initiatives like the Energy Bills Discount Scheme while implementing growth-oriented measures to stimulate the economy.

Useful Links:
1. Office for National Statistics – Consumer Price Inflation
2. British Retail Consortium – New Data Represents Relief for Consumers