The BRC said retail prices in August were 1.6 percent lower than a year earlier, compared with a 1.9 percent decline in July which was the steepest fall in the survey's more than seven-year history.

Food prices rose 0.3 percent in August, matching July's record low.

"As the UK economy continues to pick up, the benefits of subdued cost increases ... incurred by retailers will be passed on to consumers," said Helen Dickinson, director general of the BRC.

Deflation of prices for home improvement and gardening products and hardware accelerated in August, the BRC said.

Official data last month showed consumer price index (CPI) inflation fell to 1.6 percent in June, comfortably below the Bank of England's 2.0 percent target.

CPI measures a wider basket of goods and services than the BRC index, which covers 500 products commonly bought in shops.

(Reporting by Andy Bruce; Editing by William Schomberg and Raissa Kasolowsky)