Bank of England predict the rate of food price increases will reduce to 10% by the end of 2023

Food costs in the UK might not see a significant decline anytime soon, cautioned Huw Pill, the Chief Economist of the Bank of England. He highlighted that the aftermath of the Russia-Ukraine war could potentially lead to a scenario where the cost of food remains higher than its pre-invasion levels.

Addressing the Members of Parliament, Pill shared his prediction that the rate of food price increases will reduce to "around 10 per cent by the end of the year". However, he warned that a complete return to less expensive food might be really slow and could be elusive.

During a question-and-answer session on the cost of living crisis, Pill stated that even as the rate of food inflation decreases, the cost of food will still be higher than it was previously. He explained that the reverberations of food inflation might take longer than expected.

The UK, Pill noted, has borne the brunt of surging food costs, a situation that has extended for a duration longer than historical trends would have predicted.

Attributing the root cause of food inflation to Russia's invasion of Ukraine, Pill indicated how the disruption in the supply chain of key commodities grown, such as wheat and sunflower oil from Ukraine, has contributed to driving up raw material and basic food prices.

Furthermore, Pill pointed out that one reason the UK has been hard-struck by this is that UK companies responded to price uncertainties in the aftermath of the invasion by locking in pricey contracts.

He explained: "Some firms decided to sort of lock in their purchases of commodities in international markets in order to reduce that uncertainty, but they 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 suggested that as these contracts come to an end and food sub-processors within the UK adjust to the abatement of supply chain disruptions, the pace of price growth should begin to ease.

Meanwhile, inflation in food prices has decreased to its lowest level this year, according to data released earlier this month, as costs for basics such as oils, fish, and breakfast cereals decline.

Food inflation dropped to 13.4 per cent in July, down from 14.6 per cent in June, according to the British Retail Consortium (BRC) and NielsenIQ retail experts, the lowest level since December 2022.

Although, in a statement, James Walton, Chief Economist at the Institute of Grocery Distribution (IGD), stated that IGD predicts that food price inflation will slowly and steadily decline over the remainder of 2023, reaching approximately nine per cent by December. Despite the fact that food price inflation looks to have peaked in March, Walton stated that major price cuts are unlikely at this time, and sales volumes are predicted to be low until March 2024.

Prime Minister Rishi Sunak's goal to halve total inflation by 2023, ahead of a possible election in 2024, is under threat from persistently high food inflation, which has contributed to the strain on household budgets already strained by interest rate hikes.

The Bank of England forecasted in May that total inflation would fall to just over five per cent by the end of the year and fall below its two per cent target by early 2025. Although, some officials are sceptical of the models used to create these forecasts and believe inflation will be higher.

According to the most recent official data, food and beverage inflation was 18.3 per cent in May and 14.6 per cent in June, respectively.