UK price pressures: “No-deal Brexit in October would present the worst of all worlds,” warns BRC boss

29 May 2019 --- Amid rising concerns over a no-deal Brexit having a disastrous impact on the UK food and beverage industry, the head of the British Retail Consortium (BRC) is urging “politicians to step up to the plate” once again to prevent “this looming catastrophe.” Speaking to FoodIngredientsFirst, Chief Executive Helen Dickinson stresses that “the blunt truth is, there is still no clear path out of the current political deadlock,” despite the Brexit deadline being pushed further down the road to October 31 from the original March 29 exit date. Her comments come as the latest BRC–Nielsen Shop Price Index for May 2019, shows that UK food inflation continued to decelerate, fresh food inflation was steady while Ambient Food inflation slowed.

“A no-deal Brexit in October would present the worst of all worlds for our high streets and those who shop there. Retailers will be preparing for Christmas, stretching already limited warehousing capacity, and the UK will be importing the majority of its fresh food from the EU, magnifying the impact of border delays,” Dickinson says. 

It is not enough to say politicians are against a no-deal, they must use their votes in Parliament to find a deal that prevents this looming catastrophe, she says. “Once a deal is passed, the Government must then work toward a trade deal that provides for frictionless, tariff-free trade with the EU.” 

Shop Price inflation accelerated in May to 0.8 percent from 0.4 percent in April. This is above the 12- and six-month average price increases of 0.2 percent and 0.6 percent, respectively.

Food inflation continued to decelerate in May to 1.8 percent from 2.2 percent in April. This is above the 12-month average price increase of 1.7 percent, but below the six-month average price increase of 1.9 percent.

Fresh Food inflation was steady at 1.5 percent in May. This is above the 12- and six-month average price increases of 1.3 percent and 1.4 percent, respectively. 

Meat prices fell in May, in line with past global developments which are now feeding through into final consumer prices. On the other hand, downward pressures on dairy products are yet to be passed on to consumers.

Ambient Food inflation slowed to 2.1 percent in May down from 3.2 percent in April. This is below the 12- and six-month average price increases of 2.3 percent and 2.4 percent, respectively. 

However, Non-Food prices increased in May by 0.2 percent compared to April when prices decreased by 0.6 percent. This is above the 12- and six-month average price decline of 0.6 and 0.2 percent, respectively. This is the second month of Non-Food inflation in 2019, in contrast to the past six years of deflation.

The driver behind the May acceleration in Shop Price inflation was growth in Non-Food prices, caused by some sectors, such as Furniture and Health & Beauty, adjusting their prices to their 2015/ 2016 levels, following a couple of years of deep discounts. 

Accepting that the Shop Price growth in May was the second highest rate in the last six years, Dickinson stressed that it remains “well below headline inflation” and the forces driving inflation continue to play out differently across the retail industry. 

“Food inflation continued to slow, though it remains above the 12-month average,” she says. “Rising costs associated with currency depreciation, stockpiling, rising minimum wage and the Apprenticeship Levy, have all put upward pressure on prices for a while, and it now appears that retailers cannot absorb them any longer. Unless the Government addresses future cost rises, including spiraling business rates, we may see larger price rises in the future,” she warns. 

No-deal Brexit scenario returns to the forefront of debate
Initially, the UK was supposed to leave the EU on March 29, but this has been pushed back and the official “exit day” is October 31, 2019. UK Prime Minister Theresa May is resigning as Conservative Party leader on June 7. With this latest phase of political upheaval just around the corner the Conservative leadership contest is already underway, with the potential for a no-deal Brexit back at the forefront of debate. 

The Withdrawal Agreement will still have to be voted on in UK Parliament before Brexit can progress. At the time time, there is mounting speculation that the new Prime Minister could take another position, go back to the drawing board, as it were, re-negotiate a deal with Europe (despite the EU insisting this will not happen) and many other potential eventualities. 

Confusion and uncertainty reign supreme rather than clarity. However, a clear way forward that secures a robust trade agreement between the UK and Europe is what industry wants more than anything else. 

In addition, the UK’s main parties, the Conservatives and Labour, were savaged at the European polls, with other parties making significant gains. 

The Brexit Party is a Eurosceptic political party in the UK lead by Nigel Farage which was established just six weeks before the European elections took place from May 23 and 26. It emerged as a clear winner at the weekend, as people voted on its manifesto of pushing through the result of the June 2016 UK referendum for Britain to leave the EU. 

The Brexit Party won 29 seats, the Lib Dems 16, Labour 10, the Greens seven, the Conservative four, the Scottish National Party (SNP) three and Plaid Cymru (the social-democratic political party in Wales) and the Democratic Unionist Party (a unionist political party in Northern Ireland) one each. 

As the chaotic political situation ensues in the UK, key industry players remain dismayed and fearful over what the coming months will bring, certain that a no-deal will be the worst case scenario for industry, retail, food prices, availability, trade and so much more. 

By Gaynor Selby