Shop price inflation remained subdued in February, confounding forecasts of a dramatic rise, as heavy discounting at fashion and non-food retailers helped keep prices in check.

Over the year to February, shop prices shrank by 0.7 per cent — unchanged from the previous month’s reading — according to data published by the British Retail Consortium (BRC) and NielsenIQ.

Non-food prices fell by 2.1 per cent year on year, deeper than the 1.8 per cent drop recorded in January, as retailers continued to offer discounts on goods such as furniture, fashion, and electrical items. Meanwhile, food inflation rose from 1.6 per cent to 2.1 per cent over the same period, reflecting ongoing cost pressures around global commodity prices and supply chains.

The BRC findings come at a critical juncture for policymakers. Despite cutting the base rate three times since August to 4.5 per cent, the Bank of England’s monetary policy committee has signalled that further easing will be approached cautiously. The market largely anticipates at least two quarter-point cuts this year, in March and July, although the Bank’s stance on inflation and geopolitical developments may influence the pace of change.

On a month-by-month basis, prices rose by 0.4 per cent in February, attributed to the end of January sales. Helen Dickinson, chief executive of the BRC, said: “While shop prices stayed in deflation, we saw the biggest monthly price increase in the last year, particularly affecting electricals and furniture. Retailers continue to discount heavily in areas like fashion to entice shoppers in the face of weaker demand.”

Dickinson warned that inflationary pressures could intensify as the year progresses, citing planned tax and cost increases — including a packaging levy and national insurance changes — that will affect retail budgets. “We expect food prices to be over 4 per cent up by the second half of the year. If the government wants to keep inflation at bay and enable retailers to focus on growth, it must tackle the raft of costs facing the industry,” she added.

Analysts are also wary of potential shocks from changes to the Ofgem energy price cap and other inflation-linked government policies. Amid this uncertain backdrop, official figures from the Office for National Statistics showed headline inflation edging up to 3 per cent in January. Services inflation also rose, which the ONS attributed primarily to higher costs for transport, food, and non-alcoholic drinks. The next inflation data release, covering February, is due on 26 March and will be watched closely by the Bank of England ahead of its interest rate decision on 20 March.

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