Economics bulletin 05 January

Red Sea attacks – implications for UK food and grocery businesses

In recent weeks, militias based in Yemen have made attacks on vessels in the Red Sea. Some shipping companies are now routing their vessels around the Cape of Good Hope, lengthening journeys.

IGD Viewpoint: The events are unlikely to impact food security in the UK in the short-term. Previous brief disruptions had little effect on the UK food market, and this may be a guide to what to expect. Most UK food imports come from, or at least through, the EU, rather than through the Suez Canal.

Over the longer term, increased journey times and rising energy prices would raise costs for UK food businesses. It is likely this would be paid for by shoppers at some point, creating inflationary effects.

To read our full analysis of the situation please see our latest article.

National Insurance cut

From 6 January, the National Insurance rate will be cut from 12% to 10%. This will affect 27 million workers, saving the average employee £450 a year.

IGD Viewpoint: The National Insurance tax cut was announced in the 2023 Autumn Statement which included limited, tightly-targeted tax cuts for both workers and businesses. However, after taking into account the freezing of tax thresholds, the burden of taxation is likely to remain high for the foreseeable future.

As you plan for 2024, keep an eye out for our Viewpoint report which will be published on 25 January - in which we will share NEW food inflation forecasts and our predictions for what’s in-store for the economy, consumer sentiment and government policy for the food and consumer goods industry.

Energy bills rise

The energy price cap increased by 5% from 1 January . Annual bills for a typical dual fuel direct debit household will increase by £94 to £1,928. This comes at a time when households will no longer benefit from the £400 support previously provided by the government.

Independent analysts expect energy prices to decline by 14% from April 2024. Annual bills would decrease by £268 to £1,660.

Shopper confidence stable

IGD’s Shopper Confidence Index remained unchanged in December at -8. This still represents one of the highest levels since August 2021. Fewer expect to be worse off financially in the year ahead compared to a year ago (31% vs 54%).

ShopperVista subscribers will be able to read the full Shopper Confidence Index report here.

Welfare labelling

The Environment Secretary has announced that there will be a consultation covering:

• How to better highlight imports that do not meet UK welfare standards

• How to improve how origin information is given online

• How to ensure promotional activity such as Union Jack labels on supermarket displays matches the products on the shelf

• Whether existing country of origin labelling rules can be strengthened by mandating how and where origin information is displayed

From the start of this year, all geographical indication products made and sold in Great Britain will be using the UK GI logo.

Sustainable Farming

Significant changes have been made to the Environmental Land Management scheme (ELMs). ELMs is the funding scheme that will pay farmers based on the value of the environmental goods and services they provide. Changes include:

A 10% uplift in the value of the Sustainable Farming Incentive (SFI) and Countryside Stewardship (CS) schemesAround 50 new actions that farmers can take as part of the SFI and CS, alongside "enhanced" payments for activities that create or maintain environmental benefitA new streamlined application process for the SFI and Countryside Stewardship Mid-Tier