Cost of living crisis: UK shop prices rise at highest rate since 2011

Prices in Britain's shops rose at the fastest pace this month since September 2011, adding to the cost of living crisis consumers face.

A study from the British Retail Consortium (BRC) suggests that the war in Ukraine and volatility in commodity markets is fuelling inflation pressures.

This will "dampen" consumer confidence, the BRC said, warning that the full impact of mounting costs is yet to be seen.

Food inflation jumped to 3.3%, its highest rate since March 2013, while non-food inflation reached 1.5% in March, up from 1.3% in February and its top rate since February 2011.

The BRC said shop-price inflation accelerated to 2.1% in March from 1.8% in February. The official consumer-price inflation rate, which includes services and covers a wider range of products, is already above 6% and forecast to hit double digits later in 2022 as energy costs soar.

"There have been mounting cost pressures throughout the supply chain for some time, including rising wages, input costs, global commodity prices, energy and transport,” said Helen Dickinson, CEO of the BRC. "Many of these costs are beginning to be exacerbated by the situation in Ukraine, but the full impact on prices is yet to be seen."

With Brits’ disposable income set to be squeezed more from 1 April when energy bills and taxes rise, many retailers have expanded their cheapest ranges to accommodate the poorest households, Dickinson added.

Mike Watkins, head of retailer and business insight at NielsenIQ, which co-produces the data with the BRC, said: "Rising food prices will start to impact what’s put in the shopping basket, so supermarkets will need to adapt ranges to help shoppers manage what they spend on their weekly groceries."

Read more: Bank of England's Bailey: 'Historic' energy shock larger than any year in 1970s

Wheat prices have risen sharply since Russia's invasion of Ukraine, while the increase in oil prices has not only impacted the cost of domestic energy but also fertiliser and transporting goods.

The findings put more pressure on chancellor Rishi Sunak to extend support in his next Budget in October.

It also puts a spotlight on the Bank of England (BoE), which is on a cautious path to control the fastest inflation in 30 years while trying to avoid a consumer-driven recession.

On Monday, BoE governor Andrew Bailey warned that the shock to real incomes in the UK from rising energy prices will be bigger than in any year in the 1970s due to the Ukraine war.

As the cost of living is set to rise significantly this year, Bailey anticipates that lower spending as a result could help tame inflation, suggesting it would return to its 2% target in around two years.

The BoE has raised interest rates at its last three meetings to combat rising inflation, taking the bank rate back to their pre-pandemic levels of 0.75%. Economists expect the BoE to maintain a rapid pace, with six further hikes priced in between May’s meeting and February 2023, taking the interest rates to around 2.25%.

Read more: UK supermarket prices rise at fastest pace since 2012 as inflation hits

A separate analysis showed that Britain's supermarket prices surged at their fastest rate in nearly a decade this month as household budgets come under more pressure and the cost of living crisis deepens.

Grocery price inflation hit 5.2% over the four weeks to 20 March, the highest since April 2012, according to data analytics firm Kantar.

Watch: How does inflation affect interest rates?