Economics bulletin 04 August

Date : 03 August 2023

Your overview of economic and policy news with a focus on the food and consumer goods industry. Featuring the latest developments and guidance on the rising cost of living, the Ukraine crisis, labour shortages, policy developments and adapting to a new relationship with the EU.

Interest rates and recession risk

The Bank of England Monetary Policy Committee has voted to raise interest rates for the 14th consecutive time from 5% to 5.25%. Interest rates are now at their highest level since April 2008.

Interest rates are expected to remain higher for longer to return inflation sustainably in line with the 2% target. High interest rates will have an impact on economic growth. The Bank has downgraded its GDP growth forecasts for 2024 to 0.3%, down from 0.6% in May.

As we revealed in our latest Viewpoint report: Persistent inflation, politics and labour challenges, interest rate policy that is tighter for longer than expected due to stubborn inflation could trigger a recession.

Inflation outlook

Inflation is due to decline sharply over the rest of 2023, to around 5% by the end of the year. The Bank of England made clear that stubborn food inflation and strong wage growth poses a risk to this path stating that the impact of strong wage growth ‘may be beginning to crystallise’.

Shopper confidence rises

IGD’s Shopper Confidence index rose in July to -10, the highest level since the end of 2021. This comes at a time when fewer experienced rising energy bills (51% vs 68% July 2022). The fall in the Energy Price Cap in July 2023 has resulted in a fall in bills for those on standard variable tariffs.

ShopperVista subscribers can read the full Shopper Confidence Index report.

Windsor Framework Update

Guidance for the Windsor Framework Retail Movement Scheme has been released, outlining how trade between Great Britain and Northern Ireland will operate from 1st October 2023.

Businesses are now able to pre-register for the Retail Movement scheme until 24th August. Labelling requirements that come into force on 1st October for meat and some dairy products sold in Northern Ireland have also been announced.

For detailed analysis of the updated guidance, please see our full article here.

Alcohol duty changes

Significant changes to the alcohol duty system have come into effect, including:

  • All drinks sold across retail and out of home will be taxed based on Alcohol by volume (ABV) strength
  • There will be lower taxes on lower alcohol products, whilst all drinks above 8.5% ABV will now pay the same rate regardless of drink type
  • A new Small Producer Relief scheme, providing reduced rates of alcohol duty for small businesses who produce products with an ABV of less than 8.5%.
  • Expanded Draught relief on draught beer and cider and a guarantee that the duty pubs and bars pay on these products will always be cheaper than in retail.

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