UK shop prices edged higher in December, an unexpected move that complicates the inflation picture but still leaves the door open to easing pressure on household budgets later this year.
According to analysis from Shore Capital Group, the BRC-NIQ Shop Price Index rose by 0.1 percentage points month on month to 0.7%. That small increase masks a familiar split on the high street: food prices are still rising, while non-food goods remain in mild deflation.
Food inflation climbed to 3.3% in December, 0.3 percentage points higher than in November. Fresh food prices rose faster than ambient groceries, although Shore Capital notes that underlying commodity costs, energy prices and sterling have not been pushing higher.
Instead, the main drivers are domestic policy costs, notably higher National Insurance contributions, increases in the National Living Wage and the rollout of Extended Producer Responsibility charges.
Even so, the broker expects food inflation to ease gradually through 2026, potentially falling to around 2.0–2.5% by the end of the year as these pressures are absorbed.
If that happens, it would also feed through into lower headline consumer price inflation, strengthening the case for further modest cuts in UK interest rates.
Outside food, prices remain broadly stable. Non-food goods were 0.6% cheaper than a year ago, with heavy discounting in clothing and footwear after a mild autumn dampened demand.
By contrast, health and beauty products showed inflation of about 2%, reflecting resilient consumer spending in that category. Electrical goods also offered a rare bright spot, with deflation easing, a welcome development for retailers struggling with squeezed margins.
Shore Capital argues the overall picture offers cautious grounds for optimism. Softer inflation could lift real living standards and consumer confidence, though rising unemployment remains a risk.
If confidence improves and households begin to draw on high savings, discretionary spending could yet recover in 2026.