UK inflation dip aided by lower fashion discounts, but figure remains high

By

Sandra Halliday

Published
Jan 18, 2023

UK inflation may have eased last month, but with a new consumer price inflation figure of 10.5% in December, rather than 10.7% in November, it was hardly time to break out the party poppers. 

And we have to remember that the reduced figure came at a time when many retailers were offering steep discounts as they tried to attract Christmas shoppers.

The Office for National Statistics said on Wednesday that the drop in consumer price inflation (CPI) was partially driven by lower sales of clothing, further supporting the view that pre-Christmas discounts were a big part of the fall. Given that January is the peak clearance period, then we may see a similar picture for this month too. 

That said, it will be interesting to see what happens in February when new spring collections start to arrive and some businesses push through price increases. 

The British Retail Consortium’s CEO Helen Dickinson highlighted the impact of clothing prices on the December CPI figure. “Discounting ahead of Christmas helped to ease inflation in areas such as clothing and footwear, furniture and alcoholic beverages,” she said, adding that clothing and footwear inflation was only running at 6.5% last month.

The other point about the headline fall to 10.5% is that with CPI still in double digits, further interest rate increases are likely, pushing up costs both for consumers and businesses. 

And the prices of energy commodities such as natural gas may be lower than they were a year ago just before Russia invaded Ukraine, but they’re still several times higher than they were in the middle of 2021 and will still be impacting the economy.

Analysts believe the pain will continue to be felt at retail this year. Kevin Bright, Partner and Global Leader of the Consumer Pricing Practice at McKinsey, said: “While clearly a step in the right direction, this slight slowdown in inflation is unlikely to be a relief to household budgets. According to the ONS, prices are still up by 16.5% over the last two years. And whilst wages have grown at the fastest rate in more than 20 years, they are not keeping up with rising prices. 

“Taking that two-year lens, households are feeling the pain in the spending areas they can least avoid: essential categories. Hotels, restaurants, recreation, clothing and household products retailers are among those who will continue to be most impacted.”

And Alpesh Paleja, the CBI’s Lead Economist, added: “These figures add to a growing body of evidence that the UK has passed peak inflation. Despite this, the cost-of-living crisis will continue to be a very real problem for both households and businesses, as price pressures remain high in the short term. Against the backdrop of a recession, firms will continue to face higher costs and weak demand conditions. If the government is going to solve these twin problems, then it needs to continue supporting measures like the Energy Bills Discount Scheme, while enacting a series of pro-growth measures to spur the economy.”