Food inflation
The latest data from the ONS shows that all items inflation has remained stable at 2.2% in August, when measured by the CPI method.
Retail food and drink inflation has declined slightly from 1.5% in July 2024 to 1.3% in August, suggesting that major inflation reductions in this area have also petered-out.
Inflation in food and drink surprises on the upside – IGD’s food inflation forecast from summer 2024 suggested that rates would be below 1% at this point.
See our latest article, Inflation: is the slowdown over?
IGD opinion
Next month’s Economic & Fiscal Outlook report from the Office for Budget Responsibility (OBR) will give some idea of the official view of future inflation.
IGD, however, believes that the downturn in general inflation has now come to an end and that rates will be more stable in future.
However, this more stable future may be impacted should any new shock events emerge. The geo-political situation remains very unstable and may well deliver further price shocks.
Interest rates
The Bank of England Monetary Policy Committee (MPC) has decided to again hold interest rates at 5%. The MPC stated that “Monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further.”
The Governor of the Bank of England stated “it's vital that inflation stays low, so we need to be careful not to cut too fast or by too much.”
IGD opinion
With “all items” inflation apparently stable and within the government’s target zone (2.0%, plus or minus 1%), the Monetary Policy Committee must have felt pressure to deliver another interest rate cut.
In the event, they chose to delay just a little longer, which was in-line with previous cautious messaging. Persistent inflation in the Services sector remains a concern and an increase in the Energy Price Cap (taking effect in October) may mean that inflation pressure in this area will reassert as winter comes in.
Higher borrowing
UK Government public sector borrowing for August was £13.7 billion, £3.3 billion more than in August 2023 and the third highest August borrowing since monthly records began in January 1993. Public borrowing for January to May 2024 was £6bn more than forecast by the Office for Budget Responsibility (OBR).
This follows a recent report by the OBR which warned that the national debt was predicted to triple against the size of the economy over the next 50 years.
Borders and trade
A report by Aston University, Unbound: UK trade post-Brexit, has found that there has been a 27% decline in exports from the UK to the EU since 2021, compared with what it predicts would have happened without Brexit. There has also been a 32% reduction in imports.
The report found a 39% decline in exports of consumer goods due to “new customs procedures, increased paperwork, and shifts in consumer preferences.” The biggest drop in export value was for edible fruit and nuts, which declined by 73.5%.
IGD opinion
This report is, to some degree, speculative but it is hard to deny that UK trade has been impacted by Brexit, despite agreement of a fairly comprehensive trade deal.
IGD’s contacts report some disruption of food and drink imports in 2024. Some of this may be put down to “teething problems” as new IT infrastructure and staff “bed in” – if so, these issues may ease over time.
However, at least some of the disruption is attributable to a lack of engagement within the EU and this may be harder to address.
New border arrangements will remain under pressure in the months ahead and January 2025 will be a key date.
At that point, “medium-risk” fruit and vegetables from the EU, including many common species, will be subject to full border measures for the first time.
The government intends to build an improved and ambitious relationship with the European Union (EU) but has ruled out re-joining the EU, the Single Market and the Customs Union. A more attainable goal may be to negotiate a veterinary agreement with the EU, aligning standards of animal welfare and food safety.
If achieved, this would make import and export of animal-derived foods much easier, but it would be a major project and unlikely to be completed soon.
Work plan
The government has provided more details about the Back to Work Plan “to drive economic growth in every region.” Minister for Employment, Alison McGovern stated that the government will “set-up a Youth Guarantee to transform the lives of young people by providing work, apprenticeships and skills training to everyone who needs it.”
A Get Britain Working Again White Paper, to be set out in the Autumn, will outline plans to overhaul jobcentres, deliver a youth guarantee, and devolve powers to Mayors and local areas to deliver work, health, and skills plans.
The Mmmake Your Mark campaign unites the UK’s food and drink industry to celebrate the diverse and exciting roles our sector has to offer. Minister for food security, Daniel Zeichner, stated that “This campaign showcases the UK’s food and drink industry as a vibrant place to work, giving the next generation an opportunity to Mmmake Your Mark.”
Get involved in by following the campaign on LinkedIn and share your story to be part of the conversation!
Circular Economy Taskforce
Defra is inviting expressions of interest to take part in a Circular Economy Taskforce. Applications are open until 25 September.
The outputs will aim to support economic growth, deliver green jobs, promote efficient and productive use of resources, minimise negative environmental impacts and accelerate Net Zero.
Read the Member Information Pack for further details and how to apply.