Food prices could soar 10%, warns M&S boss
FOOD prices could jump by as much as 10% this year, the chairman of Marks & Spencer (M&S) has warned.
The warning comes a day after Andrew Bailey, Governor of the Bank of England, warned that households could witness an “apocalyptic” shock from rampant food inflation.
Archie Norman, who has chaired M&S since 2017 and was previously the boss of Asda, said food prices would increase further during the rest of the year.
“It’s very negative for consumer discretionary income but it’s perhaps not apocalyptic,” he told BBC Radio 4’s Today programme. “It wouldn’t be surprising to see food price inflation over the course of the year running towards 8% to 10%.
“But we don’t know that yet because it runs through the year – some has run through now but there is quite a lot still to come.”
The financial pain felt by households in the UK is set to be laid bare today as latest inflation data is unveiled by the Office for National Statistics (ONS) – and analysts predict it could be as high as 9.1% – the highest one-year increase in consumer prices since the CPI records began in 1998.
The ONS reported 7% food inflation in March and this is expected to have accelerated last month.
The supermarket executive, who was also previously a Conservative MP, said grocers have had to pass some cost inflation on to customers but said spending has been bolstered by customers’ savings built up during the pandemic.
Mr Norman said: “What’s happening is global prices are rising, it’s not to do with UK food so much as the effect of freight costs, wheat prices, oil and energy prices knocking onto almost everything.
“As a consequence, all food retailers in the UK are – because we operate on very thin margins – going to have to reluctantly allow some food price inflation to run through the system.
“At the moment, UK spending is pretty good because customers still have quite a lot of stored-up savings.
“The crunch is not going to be now, it is going to be in the autumn after people have come back from their holidays, spent their money and there is nothing left in the kitty.”
Meanwhile, the boss of Bidfood, one of the UK’s largest food wholesalers, said schools may have to reduce portion sizes for children’s meals.
Andrew Selley told the BBC: “The situation is going to lead to some difficult decisions for school caterers.
“Either they are going to serve smaller portions or use cheaper ingredients, which is not going to be good for children.”
He added that baked goods are currently up to 30% more expensive due to rising wheat prices, which are also due to feed into pasta, eggs and chicken.
Meanwhile, a predicted rise in inflation of 9.1% will be a clear demonstration of the cost-of-living crisis as separate surveys also show that people are cutting their spending where they can.
Experts also believe that officials who set interest rates at the Bank of England will need to sit up and pay attention when the figures hit. The Bank has already predicted that inflation will soar above 10% this year.
The 7% rise in March was driven by an unprecedented surge in energy bills.
Regulator Ofgem decides the maximum that an energy supplier can charge its customers, but the amount is changed every six months.
In April, the change was the highest on record – 54% for an average household – adding several hundred pounds to bills every year.
It has had a clear impact on people’s finances. A survey by McKinsey, a consultancy firm, found that 61% of households are more conscious about the amount of energy they use at home.
The survey found that rising prices were the biggest concern that respondents had in the UK, followed by the invasion of Ukraine and then Covid.
Whatever happens, the inflation figures will also have a serious impact on Bank of England policy.
Matthew Ryan, an analyst at financial services firm Ebury, said that the inflation data might force the hand of the Bank’s Monetary Policy Committee, which sets interest rates.
“If confirmed, this would place huge pressure on the Bank of England to continue raising interest rates at upcoming meetings,” he said.
“Communications from the MPC have turned increasingly dovish and largely muddled in recent weeks, although we think that upcoming inflation prints will likely force the bank’s hand.”
On Monday Andrew Bailey said that, ultimately, high global energy and goods prices would hit demand in the UK and therefore increase unemployment.
“The main driver of inflation and what brings it down is the very big, real income shock which is coming from outside forces and, particularly, energy prices and global goods prices,” Mr Bailey said.
Samuel Tombs, the chief UK economist at Pantheon Macroeconomics, said that food inflation may have eased in April compared to the year before.
In April 2021, restaurants were closed, so supermarkets took advantage over Easter as people wanted to celebrate. This year that was not a factor.
“None the less, supermarkets are likely to have continued to pass on higher costs to consumers,” he said.
What remains to be seen is how long inflation holds on. Mr Tombs’ team predicts that it will remain high throughout this year, and settle back down below the Bank of England’s target of 2% in the autumn of 2023.