UK shop price growth hits highest since early 2024

The acceleration represents a modestly hawkish signal for the Bank of England, arriving alongside the Office for National Statistics' CPI which already showed inflation at a four-month peak in July. With the BoE forecasting CPI to reach a high of 3.2% in October and November and food inflation to hit 3.5% in December, the latest BRC figures indicate that peak may prove persistent rather than a temporary blip, as both the energy and AI-driven chip cost pressures identified by the BRC appear structural rather than fleeting. For sterling and UK rate markets, the data serves as a reminder that the BoE's path toward easing faces the same kind of supply-side complication currently under debate at the Federal Reserve, where AI-related and energy cost pressures are also entering the inflation discussion, meaning gilt yields and BoE rate cut expectations could see some adjustment if the trend continues in future releases.

Official data

• UK headline inflation picked up in July, core prices held steady

UK shop prices are accelerating once again, and this time energy costs and the AI chip boom are driving the increase, not merely food.

British retailers raised prices by the most in over two years last month, as higher energy costs increased prices for some processed food and the artificial intelligence boom lifted the cost of consumer electronics relying on the same components in high demand across the tech sector.

The British Retail Consortium reported its monthly shop price index rose to an annual 1.5% in August from 0.9% in July, the highest level since February 2024. The increase was broad based across both food and non-food categories. Food price inflation rose to a four-month high of 2.8% in August from 2.2% in July, while non-food inflation climbed to 0.9% from 0.2%, also its strongest reading since February 2024.

BRC Chief Executive Helen Dickinson said the effect of higher energy, input and commodity costs is beginning to show on shelf prices, particularly for ambient foods that are typically imported and processed, a category especially vulnerable to global commodity and shipping cost fluctuations. On the non-food side, Dickinson highlighted a less typical driver: electrical prices have risen amid the ongoing AI boom, which is pushing up the cost of memory chips and storage components used across consumer electronics, from laptops to smartphones, as manufacturers compete for the same chip supply being consumed by data centre buildouts.

The BRC data appears alongside official figures from the Office for National Statistics, whose consumer price index, covering a broader basket of goods and services than the BRC's retail-focused measure, rose to a four-month high of 2.9% in July. The Bank of England's own projections see CPI peaking at 3.2% in October and November, with food price inflation expected to reach 3.5% in December, suggesting the current run of readings may reflect the early stage of a broader inflation pickup rather than an isolated data point. Taken together, the BRC and ONS figures point to a UK inflation backdrop increasingly shaped by supply side forces, energy costs on one hand and AI-driven component demand on the other, that sit outside the more traditional demand side levers the Bank of England's policy typically targets, complicating the central bank's task as it weighs the pace of any further rate cuts against an inflation profile still expected to rise into year end.