UK shop prices have dropped for the first time since the cost of living crisis began nearly three years ago, as food inflation eased and retailers offered discounts on clothes and household goods to shift unsold summer stock.

New data showed prices were down 0.3% in the first week of August, compared with the same period last year. That compares to a 0.2% rise in July, and the three-month average of 0%.

It also marks the first period of price deflation – where the prices for goods and services decrease – since October 2021, according to the British Retail Consortium-NielsenIQ shop price index.

The decline was driven by a fall in prices of non-food products, as retailers started to strategically discount their wares. Shops have been working to shift stock after a tough summer, during which consumers were less willing to brave cold and rainy weather to get to the high street, and less eager to buy summer clothing. Retailers have also been trying to figure out how to boost spending while households are still grappling with high living costs.

The chief executive of the British Retail Consortium (BRC), Helen Dickinson, said the change was “driven by non-food deflation, with retailers discounting heavily to shift their summer stock, particularly for fashion and household goods”.

“This discounting followed a difficult summer of trading caused by poor weather and the continued cost of living crunch impacting many families,” she said. “Food inflation eased, with fresh food prices, especially fruit, meat and fish, seeing the biggest monthly decrease since December 2020 as supplier input costs lessened.”

Clothing and footwear were among the most heavily discounted products, having fallen for the eighth consecutive month in August as demand weakened. Electronics were also a driver of price deflation, with tech prices starting to come down to more affordable levels, after a few years of rising prices, the BRC said.

Food prices have continued to put pressure on household finances, increasing by 2% in August, compared with the previous year.

However, this was the slowest increase since November 2021. While the costs of shelf-stable foods, such as tinned goods, crisps, teabags and biscuits, rose by 3.4%, the cost of fresh foods, such as fruit, meat and fish, dropped 1% in their biggest monthly decrease since December 2020. The BRC said this was partly due to an easing of costs for food producers.

Dickinson said: “Retailers will continue to work hard to keep prices down, and households will be happy to see that prices of some goods have fallen into deflation.”

The future remains uncertain, however. The BRC warned retail prices could still rise in the months ahead as the effects of climate breakdown on harvests, and conflicts in the Middle East and Ukraine, push up the costs of goods and fuel.

According to the Office for National Statistics (ONS), the cost of groceries has risen 32.6% since Russia’s invasion of Ukraine in February 2022, while gas prices are up by 68% and electricity prices by 45%.

The BRC’s warning comes after the ONS reported that Britain’s annual inflation rate rose to 2.2% in July – its first increase since December last year – and said it was expected to remain above the government’s 2% target for the rest of the year. The increase was linked to domestic energy bills, which fell by less last month than in July 2023.

The Bank of England also said earlier this month that it expected the consumer prices index measure of inflation to continue rising and peak at about 2.75% before falling back again. However, there is still speculation that the Bank could cut interest rates again when its monetary policy committee meets in September. The committee cut borrowing costs from 5.25% to 5% earlier this month.