This is the document that today’s Autumn Statement is based on – it also judges the chances of the government hitting its financial goals.
As expected, the economic position is fairly grim and government finances are precarious. There are several points for food and grocery professionals to take note of.
The good(ish) news
According to OBR, UK inflation may now be nearing its peak. Year-on-year CPI inflation will peak in Q4 2022 at around 11% - it would be higher without extensive government intervention in energy markets.
Inflation will then weaken over 2023, turning slightly negative in 2025 and 2026, before returning to the 2% target rate from around 2027.
Food price inflation will also peak shortly and weaken over 2023. Food prices will remain flat over 2024-26, then begin to rise slowly again.
(This view is broadly in-line with IGD’s own forecast for food price inflation – a revised forecast was issued earlier this month at IGD’s Insight & Impact event)
The bad news
Note that OBR does not anticipate any reduction in UK food prices in the foreseeable future, nor does it expect that household utility prices will return to pre-2022 levels any time soon.
Many households have already suffered severe economic harm and this harm will linger for some time, even after the current inflation “pulse” ends.
OBR believes that real household disposable income has fallen over 2022 and will fall again over 2023, taking years to return to the previous level. Impacts on consumer confidence will certainly accompany this.
According to OBR, the UK is likely already in recession and this is expected to last about a year – this would be shorter than the Great Recession (which followed the Credit Crunch) and also shallower.
However, this recession comes at the end of an extended period of economic turmoil and weakness, adding to the pressure on households and businesses.
What it means for shoppers
IGD’s ShopperVista survey data shows that many shoppers are already concerned about their financial situation and this is impacting decisions around food and drink purchasing.
For example, we see a significant swing in shopping priorities, with shoppers increasing favouring saving money over pursuing quality.
Some express a sense of material hardship and food stress, with around 1-in-10 expecting to use food banks in the next few months – this includes not only the least well-off, but also some more affluent households.
Economic pressure is likely to last for years to some and food businesses will have a role to play in helping shoppers maximise their value for money through appropriate ranging, marketing and promotional tactics.
Click chart to enlarge
More economic news and analysis
Sign up to our bulletin
Our round-up of the latest economic and political news, focused on FMCGs