Deflation may have continued unabated almost five months after the UK voted in favour of Brexit, but shop prices and costs could rise in the first quarter of 2017, according to a report.

Overall, prices were 1.7 per cent lower in October compared to the same time last year and almost unchanged from the 1.8 per cent recorded in September, according to the latest BRC-Nielsen Shop Price Index.

Deflation on non-food items also remained the same for the second consecutive month, sitting at 2.1 per cent.

However, food deflation slowed down to 1.2 per cent, compared to September‘s 1.3 per cent.

Meanwhile, fresh food prices are two per cent lower year-on-year while ambient food prices were just 0.2 per cent lower.

READ MORE: Biggest fall in food prices on record as price wars deepen

The Shop Price Index, put together by the British Retail Consortium (BRC) and Nielsen, indicates that shop price deflation will move closer to zero at the turn of the year and “could even move into inflationary territory” in early 2017.

BRC chief executive Helen Dickinson said: “While we know that the devaluation of sterling since the Brexit vote is stoking inflationary pressures, the good news for consumers is that retailers have been successful in managing this to date and there is still no impact visible in shop prices.

“However, it is inevitable that imported inflation will begin to make its mark and we would expect to start to see this effect coming through in the first quarter of 2017.”

Nielsen head of retailer and business insight Mike Watkins said: “Supermarkets are keeping prices low and inflationary pressure in the supply chain is not yet being passed on, as competition for the wallet of the shopper continues to be intense.

“Fresh food is a key battle ground for attracting new shoppers and there have been further price cuts in recent months.

“Across the non-food channel it is unseasonably warm weather that is having the biggest impact on sales so retailers are holding prices and making promotions attractive to help encourage visits to store.”

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