LONDON (SHARECAST) - Shop prices rose again last month as the weak pound continued to push up the price of domestic food, according to the British Retail Consortium (BRC).

The BRC Nielsen shop price index showed annual inflation rose to 2% in March from 1.9% the month before, the fourth monthly increase in a row.

That’s up from a low of 0.5% in December, but way down on the 3.8% peak reported last August.

Food prices are 9% higher than they were a year ago, the same as February, but more than the 7.5% in January and 6.2% at the end of 2008.

Non-food items have fallen 1.5% over the year despite rising 0.5% in March as sterling’s weakness raised the cost of some imports.

“The shop price of food is increasing because retailers are paying more for their supplies,” explained the BRC's Director General, Stephen Robertson.

“The majority of food consumed in the UK is sourced here, but the weak pound is pushing up prices for domestic produce as it becomes more attractive to overseas buyers and its increasing the cost of imports.”

Today’s news comes just a day before the Bank of England announces the outcome of its latest interest rate meeting, but is not expected to influence the central bank’s decision.

Howard Archer, chief UK economist at IHS Global Insight, says: “This is most unlikely to deter the Bank of England from persisting with quantitative easing or keeping interest rates down at 0.5% for an extended period as the danger of extended, deep recession still outweighs inflation risks.”

“We still expect annual consumer price inflation to fall back substantially over the coming months despite its current stickiness.”

Borrowing costs are widely tipped to stay at 0.5% until well into 2010 as the Bank continues its experiment with quantitative easing.

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