Economics bulletin 22 July

Date : 21 July 2022

Your overview of economic and policy news with a focus on the food and consumer goods industry. Featuring the latest developments and guidance on the rising cost of living, the Ukraine crisis, labour shortages, COVID-19 and adapting to a new relationship with the EU.

UK economy facing recession

IGD expects a recession to materialise in the short to medium term as the cost of living crisis weakens consumer demand and businesses face continued supply disruption and labour shortages.

Download our latest Viewpoint report here to understand the impact of declining household incomes and rising inflation on shopper sentiment. With a new Prime Minister due to take office by early September, we look at the changing policy landscape and provide key answers on what all this means for food and consumer goods businesses.

Inflation continues to rise

CPI inflation has reached a new 40-year high of 9.4% in June impacted particularly by record petrol prices. Food price inflation reached 9.8%, up a further 1.1% on May, slightly below IGD’s forecasts released last month. It is clear that food price inflation still has further to run.

Watch James Walton’s views on inflation in this short video here.

Record government debt interest payments

Government debt interest payments in June were the highest on record, totalling £19.4bn. This is due to the interest paid on government bonds rising in line with the Retail Prices Index measure of inflation, which hit 11.8% in June. This is forecast to go higher in the Autumn.

Real pay continues to fall

The average weekly wage increased by 6.5% over the year to April 2022. However, adjusting for the impact of RPI inflation, workers are 4.1% worse off than a year ago.

Taking out the effect of bonuses, which tend to benefit higher earners, inflation is outstripping wage growth by 6.2%. This is a significant contraction in regular household incomes. See here for more details.

Unemployment at record low

The UK labour market remains tight. Unemployment levels continue to fall, down 0.1% to April to 3.8%. Vacancies remain high at nearly 1.3 million. However, the growth in vacancies has slowed, indicating a change in business recruitment strategies.

For further insight please see here.

Interest rates could rise by 0.5% in August

The Governor of Bank of England has suggested that the Monetary Policy Committee may vote to bring in a 0.5% percentage rise to interest rates in August, in order to bring down rising inflation. This would be the largest rise since 1995.

Help for Households announced

Retail deals and discounts have been announced by the Government and leading retailers as part of the Government’s Help for Households campaign, led by the Cost of Living Business Tsar.

Deals include the extension of Asda’s ‘Kids eat for £1’ scheme and the introduction of Sainsbury’s ‘feed your family for a fiver’ campaign.

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