Bulletin: Interest rates and lower food inflation
21 March 2024Featuring food inflation, inflation, a new IGD Viewpoint resilience report and interest rates.
Lower food inflation
Food price inflation declined sharply from 6.9% to 5.0% in February. This is a little below IGD’s most recent forecast. The biggest contribution to this slowdown in food and drink inflation was bread and other cereal products, where prices seem to have stabilised.
See our full analysis.
Declining inflation
New ONS data shows that “all items” inflation declined in the latest month from 4.0% to 3.4% in February 2024, using the CPI method. This is the lowest level since September 2021. The strongest downward pressure came from food and foodservice.
IGD Viewpoint: Slowing inflation will be welcome news to consumers impacted by the cost-of-living crisis. It will place more pressure on the Monetary Policy Committee to reduce base interest rates or, at least, to give more guidance. However, persistent service inflation may make the case for a further delay in reducing rates.
New Resilience report
Our latest Resilience report: A system under pressure, an overview of the long term risks to the UK food system, outlines 10 risks that will put the UK food system under greater pressure in the future including:
The impacts of climate change will challenge the ability to achieve a resilient food system.
The food industry is the largest private sector employer in the country and will be significantly impacted by labour shortages and skills gaps.
Changes to the agricultural subsidy regime and shifting consumer preferences will create a decade of land use change.
The intense competition in the UK food industry has kept prices affordable for consumers, but this economic model is now challenged by low levels of investment.
Interest rates unchanged
The Bank of England Monetary Policy Committee has voted to keep interest rates unchanged at 5.25%.
The expectation is that interest rates may decline in the summer once inflation has reached the 2% target rate and that the MPC has confidence that it will not increase again.
IGD Viewpoint: Many hard-pressed consumers have been impacted by relatively high interest rates. The lowering of rates can not come soon enough for these consumers. However, the MPC has been careful to manage expectations, emphasising that rates will not be lowered until inflation is definitely under control.
The MPC will be assessing several factors including whether average earnings growth is under control as well as interest rates in key economies (e.g. USA). Higher interest rates in the USA may lead to lower Sterling rate which would increase prices for UK imports e.g. for energy.