UK inflation remained steady at 3.8% in September, according to the latest figures from the Office for National Statistics (ONS), defying expectations of a rise to 4%. Although this is still nearly double the Bank of England’s 2% target, the flat reading offers some relief for households and retailers as the cost-of-living continues to tighten its grip on the nation’s finances.
The latest figures show that food inflation is still outstripping general inflation, although it slowed to 4.5% in September, down from 5.1% in August, marking the first decline since March. On a monthly basis, food prices fell by 0.2%, the first drop since May 2024, as supermarkets increased discounting and promotional activity. “Food inflation continues to outstrip overall CPI at 4.5%, though that’s down from 5.1% last month,” said Pieter Reynders, partner at leading global analysts McKinsey & Company. “Consumers will still be noticing increased costs in their weekly shop, with transport costs, including motor fuels and airfares, also adding to household strain.”
James Walton, chief economist at IGD (Institute of Grocery Distribution), pointed out that the flat reading aligns with earlier forecasts – however, he warned that food and drink prices remain a “significant problem” for many households, which is likely to be reflected in “muted shopper confidence and careful shopping behaviours”. The Autumn Budget, he added, will be pivotal to retailers understanding “how announcements will affect the cost of doing business, including labour cost and business rates.”
No end in sight to cost-of-living pressures
This chimes with new research from UserTesting, which found that 60% of UK consumers are not confident their income will keep pace with the cost of living over the next 12 months – with almost half (45%) certain that it will not. More than half of respondents (52%) said they are now more worried about their personal finances following the latest inflation data, and 46% plan to cut back on spending across both essential and non-essential categories. Dining out, holidays, clothing and even Christmas shopping are among the areas where consumers expect to tighten their belts.
While this will ring alarm bells for retailers going into the usually lucrative Golden Quarter approaches, there is some good news. McKinsey’s analysis suggests that consumers are still willing to spend over the holiday period. “While consumer confidence is fragile, it is not absent,” said Reynders. “Our latest research finds that 71% of consumers plan to spend the same or more than last year on their 2024 holiday shopping, signalling that spending intentions are holding firm despite ongoing pressures.”
Nonetheless, it’s clear that, while shoppers intend to celebrate, they will do so with caution, prioritising value and stretching every pound. Retailers who can combine competitive pricing with compelling experiences, leaning into customer loyalty, will be best placed to capture spend in what promises to be a highly competitive peak season.
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