UK retailers cut prices at fastest pace since 2006

LONDON, April 9 (Reuters) - British retailers slashed prices in March at the fastest rate since 2006, industry figures showed on Wednesday, a reflection of the squeeze in consumers' incomes that has persisted even as the economy recovers.

The British Retail Consortium said shop prices in early March were 1.7 percent lower than at the same time in 2013, the biggest annual decline in any month since the series began in December 2006.

That was the 11th consecutive month of falling prices.

The price slide steepened from 1.4 percent in February, as British retailers cut prices to attract demand, particularly for clothing, electricals and furniture.

Britain's economic rebound last year - one of the fastest among advanced nations - was led by consumers. But household incomes have come under pressure as wages failed to keep up with inflation in recent years.

Food retailers are already feeling the pinch, with Britain's "big four" grocers - Tesco (Xetra: TCO.DE - news) , Wal-Mart's Asda, Sainsbury (Berlin: SUY1.BE - news) 's and Morrisons - all being outpaced by sales growth at discount supermarkets.

"It's strong industry-wide competition as retailers vie for a share of limited spending capacity that is driving this record-breaking run," BRC director general Helen Dickinson said.

"Retailers have been responding to their customers with keen prices and promotions to maintain market share, and March saw the deepest deflation for eight years and the lowest inflation ever recorded for food."

Prices for non-food items were 3.2 percent lower in March than a year ago, while food inflation slowed to 0.8 percent - its lowest level since the series began in 2006 - from 1.1 percent in February.

The BRC's measure of shop price inflation does not include online retailers or costs such as energy, transport and housing, which feed into the broader official consumer price inflation (CPI (Other OTC: CPICQ - news) ) measure targeted by the Bank of England.

CPI fell to its lowest in more than four years in February, boding well for an improvement in disposable income, particularly as wages are showing signs of a pick-up.

A survey on Tuesday showed British employers are raising the salaries they offer to new permanent staff at the fastest rate in nearly seven years as they struggle to fill vacancies. (Reporting by Ana Nicolaci da Costa; Editing by Catherine Evans)