Bulletin: Spending less, tax rises, interest rate cut

Spending less

Key findings from IGD’s latest Viewpoint report include:

• Many consumers remain scarred by the cost-of-living crisis

• 34% of all adults plan to cut spending on food and grocery shopping

• 40% of all adults plan to buy fewer items i.e. fewer food and grocery items in their trolley or basket in the next few months

• Consumers plan to use a range of savvy shopping tactics in the next few months to save money on their food and grocery shopping

Download the free Viewpoint report.

IGD opinion

Our food system is critical to our UK economy and to driving growth. It will be key for food retail and foodservice businesses to continue to do a good job on price and value to help those that continue to struggle financially.

Tax rises

The Chancellor has indicated that the Autumn Budget scheduled for 30 October 2024 will include some tax rises. This follows a statement in the House of Commons in which she said that public finances were in a weaker position than previously disclosed, with a projected overspend of £22bn in 2024-25 (versus planned spending of £1,226bn).

The Chancellor did re-commit to the Labour manifesto promise of no increases in income tax, national insurance or VAT.

The Chancellor announced a new spending review, with further reviews expected every two years after that, each one looking three years into the future.

There will be closer working between the Treasury and the Office for Budget Responsibility and a new Office of Value for Money will be set up.

IGD opinion

The Chancellor’s announcement was primarily a fiscal event, dealing with the spending of public money.

The undertaking to increase pay for public sector workers may help to bolster consumer confidence and spending power, which will be welcomed by some. However, consumers will be wary about the prospect of higher taxes for some.

However, more aggressive and fundamental reform will be needed to restart economic growth. Businesses in the food system must await certainty, which we will, very likely, see in the Autumn Budget.

The government has a huge majority in the Commons and is in a position to push through radical measures, if desired.

Interest rates

The Bank of England Monetary Policy Committee (MPC) has decided to cut interest rates to 5.0% from 5.25%. The MPC voted by a majority of 5-4, with four members of the MPC preferring to maintain rates at 5.25%. This is the first drop in interest rates since March 2020.

IGD opinion

The decision to cut base interest rates slightly recognises a weakening of inflationary pressure in the economy and a sustained fall in actual inflation.

What might happen next is unclear – more cuts or a further period of stability?

The MPC recognises that interest rate changes tend to take effect in the long term. When making decisions, it considers what might be happening in the economy months or years into the future.

The behaviour of other central banks is also a factor. No bank wants to be too far adrift from its counterparts, for fear that funds may flow out of the country as investors seek better returns.

The ECB made a rate cut in June and at the time of writing, there is some speculation that the Federal Bank in the USA will soon cut base rates.

Grocery competition

The Competition and Markets Authority (CMA) has found that “competition in the groceries sector appears to be effective in bearing down on retail margins.” The CMA has also found:

• A number of concerns with retailers’ unit pricing practices

• It is unlikely to identify widespread evidence of loyalty promotions that mislead customers

• Consumers may be paying more than they need to for infant formula

• Retailers’ fuel margins are still significantly above historic levels

Mmmake your mark toolkit

The UK’s food and drink industry has united to build the Mmmake Your Mark campaign to showcase why our industry is such a vibrant and rewarding place to work.

Download the new Mmmake your mark toolkit to take part in the campaign. The toolkit provides the inspiration and assets you’ll need to bring this industry-wide campaign to life.

For more information, contact [email protected]

Restoring farmer confidence

The government has committed to restoring stability and confidence for farmers, introducing a new deal for farmers to boost rural economic growth and strengthen food security alongside nature’s recovery.