3rd Jan 2024 10:31
(Alliance News) - The latest numbers from Kantar have prompted discussion about whether interest rates have peaked, since price inflation worries for consumers have calmed.
However, some analysts remain stuck on concerns that the red sea attacks could cause fresh inflationary headaches.
The UK grocery sector had its busiest festive period since the onset of the Covid-19 pandemic four years ago. Kantar reported grocery sales in the 12 weeks to December 24 rose 6.9% to GBP36.45 billion from GBP34.10 billion a year before. In the final four weeks of that period alone, sales totalled GBP13.7 billion.
"Supermarkets saw their highest level of transactions in December since 2019," Kantar explained.
"Britons made 488 million trips to the supermarkets over the four weeks to 24 December – 12 million more than last year and the largest number at Christmas since pre-pandemic times."
Annual grocery price inflation in December eased to 6.7% from 9.1% in the four weeks to November 26. December's figure was the tamest level since April 2022, and Kantar said it was the sharpest monthly slowdown it has ever recorded.
Kantar analyst Fraser McKevitt said: "The rate of inflation is coming down at the fastest pace we have ever recorded, but consumers are still facing pretty hefty pressures on their budgets. Retailers were clearly working hard during the festive period to offer best value and win over shoppers, and promotions were central to their strategy. Nearly one third of all spend in the four weeks to Christmas Eve was made on items with some kind of offer, the highest level since December 2020 and GBP823 million more than last year."
For the full 12 weeks of the survey, the grocery inflation rate eased to 8.1% from 9.6% in the previous 12-week period.
"News of the fastest drop on record in grocery price inflation could pressure revenue growth for the likes of Tesco and Sainsbury's and will add grist to the mill on calls for the Bank of England to consider interest rate cuts," said AJ Bell's Russ Mould.
In December, the Bank of England kept its bank rate at 5.25%. It is the third successive hold, following one in September, which ended a streak of 14 consecutive hikes since December 2021, and one in November. The BoE had rapidly increased bank rate from a Covid-19-induced low of 0.10%.
However, Victoria Scholar, head of investment at interactive investor, noted that "while inflation is coming down, prices are still rising on average albeit at a slower pace, meaning that customers are still having to spend more to obtain a similar number of items."
In the past few weeks, there has also been tension in the Red Sea which has prompted inflation worries.
"Middle East tensions could be a big spanner in the works for any hope that the Bank of England might start tinkering early with interest rates," said Susannah Streeter, head of money & markets at Hargreaves Lansdown.
"Attacks on vessels in the Red Sea prompted the shipping giants Maersk to again suspend all operations. Retailers are now warning that delays and an increase in shipping costs could force them to push up prices, causing a fresh inflationary headache for Bank of England policymakers to navigate."
AJ Bell's Mould also noted the Red Sea attacks and its impact on prices. He said that it may give policymakers in Threadneedle Street "pause for thought" as higher oil prices and shipping costs could drive renewed inflationary pressures.
By Sophie Rose, Alliance News senior reporter
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