Blog: UK food prices buck Brexit inflation fears

Katy Askew | 13 September 2016

Low food prices continue to hold back inflation rates in the UK as the supermarket price war continues in the face of rising import costs.

UK food makers and retailers who import products and materials from overseas are being negatively impacted by the devaluation of sterling in the wake of the Brexit vote. However, they have as yet resisted passing increased costs along to consumers in the country. 

According to consumer price index data, released today (13 September), inflation remained unchanged at 0.6% in August compared to July prices. This remains well below the 2% target set by the Bank of England.

In particular, low petrol and supermarket costs kept consumer prices down in the period. James Brown, partner at Simon-Kucher & Partners, notes that this was the 23rd consecutive month of falling year-on-year prices for food. “The supermarket price war showed little signs of abating this summer despite rising import costs due to sterling devaluation,” he observes.

Both Morrisons and Wal-Mart owned Asda have indicated that they are prioritising volume over profitability and, as part of its price crunch campaign, Morrisons lowered the price of over 1,000 products by an average of 18%.

“This was good news for households over the summer who were told to expect rising food costs after the vote to leave the EU in June, but tough on suppliers facing squeezes on their margins,” Brown says.

While UK supermarkets are firmly focused on delivering low prices in their bid to defend market share – against each other and the discounters – it is nevertheless unlikely that falling food prices will persist as the year progresses. Indeed, month-on-month prices showed a 0.4% increase from July to August, suggesting that food deflation is slowing and even beginning to reverse.