Shoppers are utilising loyalty programmes like Tesco Clubcard and Sainsbury’s Nectar to save money at the register.

Inflation in the UK is anticipated to decline following the release of industry data indicating that the rising cost of food slowed in July as more consumers turned to supermarket loyalty cards in response to the rising cost of living.

According to retail industry data provider Kantar, the annual increase in grocery prices slowed to 14.9% in the four weeks leading up to July 9 from 16.5% a month earlier, marking the weakest annual rate of increase since the holiday season.

The snapshot comes ahead of official figures on Wednesday that are expected to show the UK’s headline inflation rate resumed a downward trend in June after remaining unchanged at 8.7% in May, thereby raising expectations for a broader easing of pressure on households.

Economists in the city anticipate that inflation fell to 8.2% last month, aided by lower petrol prices and a slower rate of increase for food, drink and other fundamental necessities. 

However, prices remain elevated and continue to increase much faster than in the past.

At its next policymaking meeting in August, the Bank of England is expected to raise interest rates, adding to the woes of mortgage holders concerned about UK inflation remaining among the highest in the G7.

Jeremy Hunt opined that the most recent Kantar data indicated that food price inflation should continue to decline in the future months.

“The soaring global energy cost and the disruption of supply chains caused food inflation.” However, consumers should benefit from resolving both issues, and we ensure this occurs. Hopefully, this is what we are beginning to observe.”

Hunt has met with supermarket executives at 10 Downing Street to pressure the retail industry to pass on reduced wholesale costs to consumers, while opposition MPs and unions have accused retailers of profiteering.

There is growing optimism that inflation will moderate in the coming months, aided by declining energy prices and a slower rate of food price inflation. According to data provider Moneyfacts, the average two-year and five-year fixed-rate mortgage rates remained unaltered for a second consecutive day. 

This comes after a dramatic increase in borrowing costs in recent months. Tim Steiner, CEO of the online grocer Ocado, stated that “we are definitely over the worst” of inflation and that the supermarket industry was “working hard” to prevent price increases.

After the sharpest annual increase in food and beverage prices since the late 1970s, prices are likely to continue increasing, albeit at a slower rate. Steiner cautioned that wages, utility costs, and interest rates would continue to increase his business’s expenses.

Kantar analysts report that Ocado’s retail division’s sales revenue grew by only 5% in the six months preceding May 26, lagging far behind the industry’s inflation rate.

Ocado shares increased by 16%, making it the top gainer on the FTSE 100, as the company performed better than anticipated despite half-year losses of nearly £290 million, with the retail arm falling £2.5 million into the red compared to a profit of £31 million a year earlier.

Fraser McKevitt, director of retail and consumer insight at Kantar, stated, “Grocery price inflation has decreased for four consecutive months. This is excellent news for many households, although the unemployment rate is still astronomically high.”

“Spending on promotions has increased for the first time in two years, and now accounts for slightly more than a quarter of the market… One of the most significant changes we’ve observed in this industry is retailers increasing loyalty card offers like Tesco’s Clubcard prices and Sainsbury’s Nectar prices.”

The 10.7% increase in overall sales of groceries for domestic consumption lagged behind the inflation rate, indicating that fewer items were purchased.

“It is evident that shoppers have drastically altered their behaviour to combat inflation, whether by trading down to cheaper products or shopping at different supermarkets,” McKevitt stated.

Aldi and Lidl have been the primary beneficiaries of altering consumer behaviour. Aldi is the fastest-growing grocery store, with revenues up 24% in the 12 weeks leading up to July 9. It now controls 10.2% of the market, up from 9.2% a year earlier. After-sales increased by 22.3%, Lidl’s market share rose by 0.7 percentage points to 7.7%.

With sales up 10.7% by the market, Sainsbury’s was the fastest-growing traditional supermarket chain. Morrisons and Ocado lagged behind the competition, but Morrisons posted growth of 2.5%, its highest performance since April 2021 and its eighth consecutive month of improvement.