UK supermarket Iceland offers loans to help struggling shoppers buy food

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Britain's Prince Charles visits Iceland Foods Ltd in Deeside, Wales

LONDON (Reuters) - British supermarket group Iceland Foods will allow shoppers to take out small, interest-free loans to buy groceries, it said on Wednesday, in a scheme targeted at poor households struggling with soaring costs of living.

Iceland will partner with non-profit lender Fair For You to offer loans of 25-100 pounds ($30-$121) through pre-loaded cards to financially vulnerable customers, who can make repayments once a week.

The scheme comes as UK inflation hovers around 40-year highs, having risen sharply in recent months, squeezing household budgets and contributing to a wave of industrial unrest.

Official figures on Wednesday showed British inflation had topped 10% in July, spurred mainly by surging energy prices, with forecasts showing prices set to rise by more than 13% in October and cause a long recession.

"More than ever, people are struggling to purchase much needed everyday items during this relentless cost of living crisis, and fresh thinking is required by business and government to find workable solutions," Iceland Foods Managing Director Richard Walker said in a statement.

The loan scheme would offer flexible repayment programmes and borrowers would not be harassed by debt collectors, Walker said on Sky News earlier on Wednesday. He also said loans would not be sold off to third parties.

Iceland said its scheme follows a successful pilot with 5,000 customers. Nearly three-quarters of them said they were now less likely to fall behind on bills and 92% reduced their usage of food banks, which provide emergency food supplies to families in need.

The loans will be limited to six windows through the year to coincide with school holidays when expenses usually rise, Iceland said.

($1 = 0.8254 pounds)

(Reporting by Sachin Ravikumar; editing by William James)