Upward pressure on British shop prices eases for now, finds BRC

Prices in British shops fell slightly faster in July than a month before but are likely to pick up again later this year, according to a British Retail Consortium survey published on Wednesday.

Prices had fallen at their slowest annual rate in four years in June, at 0.3 percent, but in July deflation reverted back to the levels seen in May, with prices falling by 0.4 percent.

Helen Dickinson, chief executive of the British Retail Consortium, said the July figure brings "the march of overall shop prices towards inflationary territory to a halt, for now at least".

The drop in the value of the pound after last year's Brexit vote has pushed up prices, putting the Bank of England on alert as it considers whether to raise its record-low interest rates.

Food prices - pushed up by a weaker pound and its impact on the cost of imports - rose by 1.2 percent in July compared with a year earlier, slower than a 1.4 percent rise the month before.

Still, the increase in food prices stands in contrast to a deflationary trend seen over the past four years which reflected a supermarket price war before the Brexit vote.

Non-food prices continued to fall at a steady rate, reflecting how retailers have tried to balance out their price increases for some products with cuts in other areas, the BRC said.

"There is a limit to how much retailers can absorb into their margins," Dickinson said. "As we move into the autumn we can expect non-food prices to get closer to inflationary territory.

Data last month showed that consumer price inflation unexpectedly slowed in June for the first time since October, dropping to 2.6 percent from 2.9 percent in May.

This Bank of England had previously warned inflation could exceed 3 percent by the autumn, and this lifted some pressure on it to raise interest rates.