Bulletin: Low shopper confidence and US tariffs

GDP concern

GDP increased by 0.1% in Q4 2024 according to the ONS. However real GDP growth per-capita was down 0.1%.

Services and construction did show growth, as did inventories. But these gains were offset by steep declines in production, capital investment and net trade.

IGD Opinion

It should be noted that the new data is provisional only, based upon limited data. An update will be issued, based on expanded data and findings may change, in either direction. However, this data is not encouraging.

GDP gains made in the first two quarters of 2024 have evidently petered out. Growth in Q3 2024 was zero and growth in Q4 was scarcely better.

The economy is not currently contracting, but it is clear that any further mishaps – a trade war, a banking crisis or similar – might easily tip the UK into recession.

Under the circumstances, both businesses and consumers are likely to remain cautious (e.g. including business investments and consumer spending).

The government will need to work hard in 2025 to restore confidence and push forward with economic reform initiatives.

Low shopper confidence

IGD’s Shopper Confidence Index declined in January 2025 to the lowest level since August 2023. More shoppers are feeling concerned about food and energy prices. There are also increased concerns around job security.

IGD Opinion
The latest news on shopper confidence combined with a subdued economic outlook add to a feeling of ‘January Blues’. Download our latest Economic Viewpoint report, A shaky start to 2025, what’s next? to understand our analysis of the economy, consumer sentiment and government policy.

US tariffs update

The US President has announced 25% tariffs on all steel and aluminium imports. The measures will come into force on 12 March 2025. Canada alone accounts for more than 50% of aluminium imports and is the top country for steel imports to the US.

Separately, the US President has announced proposals for reciprocal trade tariffs. This will include countries that charge VAT. Under the plan, the US will match levies imposed on its exports. It is not yet clear how this will affect the UK. The tariffs could come into effect after 1 April 2025.

IGD opinion
Ultimately, it is US consumers that will pay tariffs on imported goods, not the exporting nations - tariffs generally tend to be inflationary.

In some markets - food and drink, for example - US consumers may be able to avoid inflationary effects by switching to domestic alternatives. However, few American consumers are likely to be in the market for basic metal goods of the kind covered by the new tariffs.

Most will wish to buy completed manufactured goods, so broad inflation effects should be expected until US manufacturers are able to offer alternative items. This will not be a quick process – the tariffs cover all metal imports, so US manufacturers will not be able to evade tariffs by simply switching to alternative suppliers.

Higher prices generally result in lower volume, so the net effect on the US economy is likely to be a fall in demand as the effect of tariffs is passed through. The new metal tariffs will have greatest impact on Mexico and Canada, both of which made concessions to the US in order to escape the first tranche of tariffs.

However, the introduction of broad new tariffs will force many countries to assess their response. Retaliatory tariffs on US goods seem likely and numerous major exporters will likely need to seek alternative markets to absorb production that might have otherwise gone to the US.

We should therefore expect changes to trade flows and fluctuating prices in many markets. The UK exports about £3.7bn worth of basic iron and steel goods per year, plus about £1.3bn worth of basic aluminium.

Exports to the US are worth about £321m and £106m respectively, so the US makes up around 10% of UK metal exports (source: UK Trade Info, average for last 3 full years). The US is the second biggest UK export market after the EU.

A 10% tariff on UK metal exports would be significantly damaging, particularly impacting a small number of communities, some of which have been facing challenges for some time.

While it may be possible to find alternative markets over time, other countries affected by the US tariffs will be working toward the same goal.

The UK government has stated that it will not respond to the new tariffs for now, but it will eventually need to take action.

Apprenticeships boost

The government has announced that up to 10,000 more apprenticeships will be able to qualify per year. Changes include:

• Greater flexibility on whether Level 2 Maths and English is required for those aged over 19

• Shorter courses, with the minimum duration of eight months (previously 12 months) from August 2025

• Skills England to have a key role in addressing the skills gaps

Raise the profile of your business in providing progressive careers in the food industry through apprenticeship opportunities.

Download the Mmmake Your Mark campaign toolkit.

IGD Opinion
The changes to the Apprenticeship Levy are to be welcomed. Businesses within the food system have been calling out for changes to encourage investment. Greater flexibility on entry requirements and shorter training courses will help industry to grow.

Bird flu update

The government has announced that bird gatherings of poultry, galliforme or anseriforme birds are banned in England.  This includes ducks, geese, swans, pheasants, partridge, quail, chickens, turkeys and guinea fowl.

Infant formula milk

The Competition and Markets Authority has made a number of proposals for Instant formula milk. These include:

• Removing branding in healthcare settings

• Information about nutritional sufficiency should be displayed clearly and prominently on shelves and when buying online

• In store, all brands of infant formula should be displayed together and in a separate cluster from other formula milks to enable quick and easy price comparisons

• Claims on packaging that are intangible, or cannot be easily checked by parents, should be banned

• Advertising (including price promotions and deals) for follow-on milks should be banned

• Gift cards, vouchers, loyalty points, and coupons should be allowed to purchase infant formula

• Better enforcement of current and future rules