Will inflation kill recovery?

Date : 06 January 2022

IGD Chief Economist, James Walton, shares IGD’s views on the key points explored in the next issue of Viewpoint ahead of its publication later this month.

UK food and consumer goods businesses performed well over Christmas 2021, despite ongoing operational challenges.

Kantar’s Worldpanel data suggests that retail sales in December 2021 were down 0.2% versus December 2020 (a record year), but up 8% on December 2019, with sales supported by strengthening inflation.

Given renewed fears relating to COVID-19, foodservice businesses did slightly less well, with operators reporting fewer bookings – especially in London – and high numbers of “no-shows”.

2022 remains hard to predict; in addition to COVID-19 and UK relations with the EU, food and consumer goods businesses face uncertainty in several areas. In our next Viewpoint report, we explore:

  • Will recovery persist?

    Economic recovery from the shock of COVID continues but is clearly slowing. We anticipate that this will continue into 2022, with growth returning to the previous trend rate.

    There are several risks to this – COVID is the most immediate, along with inflation and new border measures. Beyond that, issues such as poor productivity growth will return to the strategic agenda.
     
  • How far will inflation go?

    We anticipate that inflation will remain high in 2022, with impacts on many UK households. This applies especially to food and consumer goods, where multiple factors are causing operational costs to rise.

    This will have psychological effects on shoppers – IGD data shows that prices, especially food and fuel prices, play a powerful role in shaping confidence.
     
  • How will shoppers cope?

    Shoppers are under increasing pressure as inflation continues to bite, with the least affluent being particularly affected. This is shown in IGD ShopperVista data.

    Shoppers are expected to become more mobile in 2022, switching products and retailers more readily, in order to maximise value. Businesses will focus strongly on retaining and attracting shoppers.
     
  • How will labour markets evolve?

    We are pessimistic regarding future labour availability for food and consumer goods businesses. Many EU workers have left the UK and post-EU migration policy keeps most new workers out.

    The UK is likely to face poor labour availability and elevated wages even after the threat of COVID-19 fades – businesses must focus on recruitment, retention, automation and improved labour productivity.
     
  • How will policy change?

    Government is pursuing policy change on a broad front, with a focus on health and sustainability. Food and consumer goods businesses are convinced of the need to change and are taking action.

    Change creates business complexity, however. Close collaboration and sharing of best practice are critical to successful change.

Be the first to receive the next issue of Viewpoint and hear the insight and analysis behind the report firsthand from James and IGD’s Head of Economic and Consumer Insight, Michael Freedman by joining our FREE webinar at 11am on Thursday 20 January. Find out more and register here

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