Food prices likely to remain high, Bank of England warns

Food prices are likely to remain high for the rest of the year, the Bank of England has said.

The Bank said there was “quite wide agreement” that food price inflation had now peaked and was expected to be significantly lower by the end of the year at “perhaps around 10% or slightly lower”.

It said that cost inflation experienced by food producers had fallen, but still remained much higher than usual, and could take longer for some producers to see lower pressures, particularly where there were annual contracts with suppliers or group-buying arrangements.

Many food producers were also facing significant cost pressures from wages and energy.

Wage growth was expected to remain higher than normal into 2024, and many businesses would not benefit from the reduction in wholesale gas prices until their energy contracts come up for renewal, which was likely to be this autumn for many smaller firms.

Which? head of food policy Sue Davies said: “It’s worrying that food prices are expected to remain high for the rest of the year as people continue to struggle.

“This means they will continue to put huge pressure on millions of families and people on low incomes who have struggled to cope with rising costs month after month.

“Supermarkets can take meaningful action to help customers who rely on more expensive convenience stores by ensuring they stock a range of budget products that support a healthy diet, as Which? research has found these items are rarely, if ever, on sale in smaller branches.

“The Competition and Markets Authority recently agreed with Which? that grocery pricing can be unclear, so supermarkets must also act immediately to make it easier for shoppers to compare prices, while the Government must fulfil its promise to close the loopholes that are making it too easy for supermarkets to confuse shoppers.”

Barret Kupelian, senior economist at PwC, said: “The Bank’s decision today to raise its policy rate by 25 basis points reflects the good, the bad and the ugly of tightening monetary policy.

“The more positive news is that the inflation, which is currently running at 7.9%, is expected to fall further. The Bank’s conditional forecasts show that they are due to fall to 5% by the end of the year and that it will hit the Bank’s target by the beginning of 2025.

“Monetary policy is working.

“The bad news is that even though food inflation is expected to moderate, food prices will remain high and not decrease.

“This means that the era of cheap food has probably come to an end in the UK. It also highlights the need to build resilience in the UK economy by doing more to bolster the domestic food-growing industry.”