Low inflation in 2015 battered businesses as consumers rejoiced

Chris Papadopoullos
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Discounts were a boon to consumers but have left UK businesses out of pocket (Source: Getty)

Businesses lost out to the tune of £16.8bn last year due to low inflation, new research given to City A.M. shows.

Prices were only 0.1 per cent higher in November than a year ago, well below the Bank of England’s two per cent inflation target, and hovered around zero per cent for most of 2015.

Falling prices in many markets benefited UK households by £630 each, but this came at the cost of firms which lost out on revenue, according to consultancy Simon-Kucher.

“For every winner there will be a loser, and in 2015 that was UK businesses. The £16.8bn consumer saving was financed entirely by companies: ultimately through lower margins,” James Brown, head of UK consumer goods at Simon-Kucher, told City A.M.

“Most businesses put huge amounts of effort into selling more, and not enough effort into improving their prices. In fact, many rush to make discount after discount in the hope of selling more without fully understanding the consequences, often negative, on their profits.”

Around a quarter of the boost to UK households came from cheaper transport costs, driven by lower petrol prices. This led to severe losses along the oil and gas supply chain.

Supermarkets and their suppliers contributed 14 per cent or £2.3bn to consumer savings last year. This was due to falling prices for food and non-alcoholic drinks. Simon-Kucher said it was a direct result of “the supermarket price war that raged last year following the continued success of Aldi and Lidl”.