The chief economist of the Bank of England has warned that UK food prices will not return to the low levels experienced before Russia’s invasion of Ukraine.
Huw Pill said although the rate at which food prices are rising was expected to slow to “about 10% by the end of the year”, a return to cheaper food was “something we may not be seeing for a while yet, if in the future at all”.
The UK has been particularly impacted by rising food prices and Pill said the impact has “been a little bit more long-lasting than would have been expected on the back of past behaviour”.
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He placed the blame on Russia’s invasion of Ukraine, which played havoc with the supply chain of staples grown in Ukraine such as wheat and sunflower oil, and brought up costs of raw materials and basic food.
One explanation for why the UK has been harder hit than other countries is that firms responded to the price uncertainty in the wake of the invasion by locking in expensive contracts.
“Some firms decided to sort of lock in their purchases of commodities in international markets in order to reduce that uncertainty, but potentially locked in at quite high levels of prices and they’re still passing that through the system into what ultimately we’re paying for in shops,” Pill said.
However, he said that price rises would begin to slow as those contracts come to an end.
Earlier this month data showed that food price inflation had slowed to its lowest level this year as prices of staples including oils, fish, and breakfast cereals fall.
According to the British Retail Consortium and NielsenIQ retail analysts, food inflation slowed to 13.4% in July, from 14.6% in June – the lowest level since December 2022.
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