Bloomberg
UK retailers are losing the battle against higher prices, potentially strengthening the case for the Bank of England to increase interest rates next month.
A report on Tuesday from the British Retail Consortium and KPMG showed like-for-like sales increased 1.9 percent from a year earlier—a fourth straight month of gains. Still, the fastest growth since April was driven by consumers paying more for essential items as retailers passed on the impact of the pound’s drop since the Brexit vote to shoppers.
“We see that much of this growth is being driven by price increases filtering through, particularly in food and clothing,†said Helen Dickinson, chief executive of the BRC. “Retailers have worked hard to keep a lid on price rises following the depreciation of the pound, but with a potent mix of more expensive imports and increasing business costs from various government policies, something had to give at some point.â€
The UK currency has weakened about 12 percent versus the dollar since the nation’s decision to leave the European Union last year, a decline which is stoking inflation even as wage gains remain tepid.
Because Brexit has also lowered the speed the economy can grow without fanning prices, BOE policy makers have said they’re moving close to increasing interest rates for the first time in a decade, possibly as soon as next month. Consumers shied away from big ticket items such as furniture and electrical goods, the BRC said.
A separate report from the BRC warned that further price hikes may come as retailers deal with higher employment costs as a result of government measures such as the Apprenticeship Levy and a higher minimum wage.