UK Shops Slashed Prices In Run Up To Christmas-BRC

U.K. shop prices grew at their slowest rate in more than a year in December, the latest evidence that a flagging economy has forced retailers to slash their prices to lure in customers.

Shop prices rose 1.7% in December from the same month in 2010, the British Retail Consortium said Wednesday, down from 2.0% in November. That is the slowest rate of inflation in 16 months.

Price growth was especially weak among non-food items, which rose just 0.3% on the year--the lowest rate since November 2009, and down from 0.8% the prior month. That outweighed a slight acceleration in prices of foodstuffs, to 4.2% from 4.0%.

The weak inflation figures illustrate the measures shops were forced to take to attract business in what is normally by far the busiest month of the year. In response to a high street awash with discount signs, retailers including Marks & Spencer Group PLC (MKS.LN), Debenhams PLC (DEB.LN), John Lewis and Home Retail Group PLC's (HOME.LN) Argos all ran high-profile discounts several weeks before Christmas.

The BRC said non-food inflation will likely turn negative in January because last year's rise in the U.K. sales tax won't be replicated, pushing the annual rate down further.

Many consumers have been wary of splashing out as scant pay rises have squeezed their income, while a weakening economy has heightened fears over job security.

Data Wednesday confirmed the labor market is weakening. The number of people hired for permanent jobs fell for the third month running in December, according to a survey of recruitment firms by Markit Economics. Its staff placement index edged up to 48.5 from 48.2 but remained below the 50 no-change threshold. Temporary placements also fell for the first time in more than two years.

The figures mean it is "difficult to be optimistic about the employment market in 2012," said Bernard Brown, head of business services at KPMG, the business services group that co-sponsors the report.

Official figures later this month are expected to show economic growth slowed sharply in the fourth quarter and many economists believe a recession--at least two quarters of contracting output--is probable.

The Bank of England is widely expected to take action to boost the economy soon by raising the ceiling of its asset purchase facility. But with the current GBP275 billion program only due to be completed in February, the bank isn't expected to take any action when it announces its latest decision Thursday.

-By Alex Brittain, Dow Jones Newswires, +44 20 7842 9203;

alex.brittain@dowjones.com

(Kathy Gordon contributed to this article.)

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