Retailers continued to drop prices towards the end of 2017 as the competitive business environment made it difficult for firms to pass on inflationary costs.
Shop prices fell by 0.6 per cent in December, moving further into deflation, having fallen by 0.1 per cent in November, according to figures from the British Retail Consortium and Nielsen.
Continuing a trend seen for much of last year, non-food retailers were the main source of deflation; prices in this section of the market were down by as much as 2.1 per cent. Food prices, however, were up by 1.8 per cent, rising from inflation of 1.5 per cent in November.
Mike Watkins, head of retailer and business insight at Nielsen, said the figures showed retailers were not making a substantial contribution to the UK's overall rate of inflation.
"With consumer confidence wavering and unpredictable levels of demand, many non-food retailers have been keeping prices low to stimulate spending, which will undoubtedly have come at a cost to margins," he said.
"Whilst food prices have edged up a little due to supply chain increases in fresh and seasonal foods, pricing across supermarkets will remain competitive as we start 2018 with consumers still coping with higher household bills."
The winter months are the crucial sales period for retailers, but heavy discounting around Black Friday, and in the period immediately after Christmas, means the businesses are often taking a hit on margins to entice shoppers.
High street retailers also continued to face stiff competition from online. According to data from BDO, high street sales fell for the fifth year in a row in December, down by 2.3 per cent.
“Consumer confidence is low, and shoppers have exercised extreme caution or shopped strategically online, rather than visiting bricks-and-mortar stores or making impulse purchases," said Sophie Michael, head of retail and wholesale at BDO.
"As such retailers, and in particular fashion retailers, have felt a fall in footfall and consumer spend.”