Bank of England Warns of 5.5% Food Inflation by 2025 as Interest Rates Cut

The Bank of England has released its latest monetary policy report, warning of a 5.5% rise in food inflation by the end of 2025, exceeding previous estimates. This increase is driven by rising key food commodities, higher employment costs, and extended producer responsibility (EPR) levies on packaging. The report also notes that higher food prices were a key driver of inflation, with the bank estimating that food price inflation would ease in 2026 as cost increases pass through the supply chain to retail. However, the current rate of food price inflation in the UK is over 1.5 percentage points higher than in the Eurozone, which faces similar global commodity price increases.

Key Takeaways:

• The Bank of England predicts a 5.5% rise in food inflation by the end of 2025, exceeding previous estimates, driven by rising key food commodities, higher employment costs, and EPR levies on packaging.
• Higher food prices were a key driver of inflation, with the bank estimating that food price inflation would ease in 2026 as cost increases pass through the supply chain to retail.
• The current rate of food price inflation in the UK is over 1.5 percentage points higher than in the Eurozone, which faces similar global commodity price increases.
• The Bank of England put the difference down to increased staffing costs, with annual pay growth at 7% and 7.6% in food manufacturing and retail respectively.
• EPR costs have already started to drive up costs at the till, with the packaging levy likely to add only half a point to inflation in total.
• BRC chief Helen Dickinson blames the government for inflation, warning that the Bank of England report outlines how the last budget continues to push up food prices.
• The government's policies will add £7bn to retailer costs this year, from higher employment costs to the introduction of a new packaging tax.

Statistics:

• 5.5%: predicted rise in food inflation by the end of 2025
• 1.5 percentage points: current difference in food price inflation between the UK and the Eurozone
• 7% and 7.6%: annual pay growth in food manufacturing and retail respectively
• £7bn: amount of costs added to retailers by government policies this year

Sources:

• Bank of England, Monetary Policy Report (7 August 2023)
• Helen Dickinson, BRC chief, as quoted in the Monetary Policy Report