Widespread discounting by retailers struggling to woo customers in December has led to the sharpest fall in non-food prices for two years.

Non-food prices fell by 2.4 per cent in December compared to the same period in 2007, according to figures released today by the British Retail Consortium.

While prices in the non-food sector were the only ones to fall year on year, across the board price inflation was down compared with November’s figures.

Overall shop prices in December rose by only 0.5 per cent year on year from 2007, 2.2 per cent lower than November’s increase.

And food inflation was down to 6.2 per cent – compared with a rise of 7.1 per cent in November - its lowest level since May 2008.

BRC director general Stephen Robertson said: “Huge discounting by retailers, together with the VAT reduction, brought non-food prices down dramatically. Goods in every category were much cheaper - both compared with the previous month and a year ago.”

“It’s clear retailers are holding down shop prices at a time when many of their own costs are increasing. The Government shouldn’t be adding cost burdens, such as record high business rate increases, at a time when margins are being severely squeezed.”

In Scotland overall shop prices inflation had its biggest month on month fall since the index was created in 1995, dropping to 1.5 per cent growth in December from 3.8 per cent in November.

The weak inflation figures are down to a combination of retailers discounting more heavily than in recent years and the 2.5 per cent fall in VAT announced by the government in November as a way of stimulating spending.

Scottish Retail Consortium director Fiona Moriarty said: "Non-food goods such as electricals, clothing and footwear are actually cheaper than they were a year ago showing how retailers' huge discounts and the VAT cuts are containing prices for customers."