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Banks (Finance)

UK Food Inflation Set to Rise as Extended Producer Responsibility Packs on Costs

Strategic Insights

— 2 min read

The Bank of England's August Monetary Policy Report has revealed that the introduction of the government's extended producer responsibility (EPR) packaging tax is one of the key drivers of rising food inflation in the UK. According to the report, food basket prices are expected to rise by more than 5% by the end of Q3, outstripping inflation rates seen in the EU. Industry sources have confirmed their fears that the policy will lead to significant cost increases, which will be passed on to consumers.

Key Takeaways:

  • The introduction of EPR is contributing to rising food inflation in the UK, with food basket prices expected to rise by more than 5% by the end of Q3.
  • The bank's report states that some suppliers have already been passing on cost increases related to EPR, but the vast bulk of cost rises will come in the autumn.
  • Industry sources confirm that the bank's admission that EPR is already impacting inflation has cemented their fears over the policy and calls for the government to do more to ensure funds raised by the policy are ringfenced.
  • UK inflation is currently 1.5 percentage points higher than in the euro area, with higher labour costs and the introduction of EPR contributing to the difference.
  • A poll of suppliers by The Retail Mind reported that more than 65% of suppliers expected to have to pass on more costs later in the financial year, following strong resistance from retailers in the first half.
  • The BRC and KPMG reported food inflation at 4.5%, with CEO Helen Dickinson stating that sales growth was "barely touching the sides of covering the £7bn in new costs imposed on retailers at the last budget".

Statistics:

  • Food basket prices are expected to rise by more than 5% by the end of Q3, according to the Bank of England's report.
  • Inflation in the UK is currently 1.5 percentage points higher than in the euro area.
  • More than 65% of suppliers reported expecting to have to pass on more costs later in the financial year, according to a poll by The Retail Mind.
  • Food inflation is projected to hit 6% by the end of the year, according to industry sources.
  • The BRC and KPMG reported food inflation at 4.5% in their recent report.

Sources:

  • Bank of England, Monetary Policy Report, August
  • The Retail Mind, Poll of Suppliers, June
  • The Grocer, Report on Retailers Pushing Back Against Cost Price Increases, June
  • BRC and KPMG, Food Inflation Report, recent data
  • The Grocer, Retail Source Interview, recent data

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