Shoppers to count cost as stores lose defence against low pound

MORE price rises are on the way as businesses which were protected against the fall in the pound are losing that defence and will start to face the full force of the weak currency.

Some retailers hedged against a drop in sterling, using financial instruments as insurance to keep their costs down.

But those hedges are running out and so import costs are going up, putting more pressure on prices on the high street, the British Retail Consortium (BRC) has warned.

Its shop price index shows food prices rose by 1.3pc over the past year while overall the era of deflation, which has seen prices fall for much of the last four years, is coming to an end.

Prices across all sectors fell by 0.3pc compared with August 2016, the jointsmallest fall since mid-2013.

On the month, prices rose by 0.2pc, the biggest rise since February of this year. Deflation has slowed across a range of categories including clothing, electricals, and DIY and gardening goods, though household goods and furniture dipped back into deflation after a brief spell of rising prices, and books, stationery and home entertainment cost pressures also eased a little.

“On the one hand, retailers face continued pressure from rising sourcing costs from the Brexit-induced fall in sterling. On the other, operating costs from rising staff wages, business rates and retail rents are also heading higher,” said Richard Lim, chief executive of Retail Economics.

“The combination of these pressures has eroded profit margins and retailers are having to pass through some of these costs to consumers.

“What’s more, against a backdrop of slowing consumer demand the trading environment for retailers in the second half of the year will be extremely challenging.”

The BRC also warned that retailers could be left short of stock after Brexit if the Government fails to implement a smooth system of border checks. Imported foodstuffs in particular could be highly vulnerable to any delays at Britain’s ports and airports as they could perish while waiting for customs clearance. The group predicts that UK customs declarations could rise from 55m per year now to 255m in 2019 and that if no trade deal is struck with the EU then customs delays of two to three days might become usual.

“A strong deal on customs is absolutely essential to deliver a fair Brexit for consumers. Whilst the Government has acknowledged the need to avoid a cliff-edge after Brexit day, a customs union in itself won’t solve the problem of delays at ports. So to ensure supply chains are not disrupted and goods continue to reach the shelves, agreements on security, transit, haulage, drivers, VAT and other checks will be required to get systems ready for March 2019,” said Helen Dickinson, the BRC’S chief executive.

“We want to work with the Government to develop a system which works for consumers.”