Hikes in National Insurance contributions (NICs) and the minimum wage were contributing to shoppers paying more for their food, the Bank said – and warned the situation will likely get worse.
Food inflation hit 4.5 per cent in June, higher than economists had predicted in May, and is predicted to rise to 5.5 per cent next month.
Retail industry leaders warned that grocery inflation will accelerate even further if the Chancellor goes ahead with tax hikes in the Autumn Budget. And the Bank flagged that Deputy Prime Minister Angela Rayner’s upcoming Workers’ Rights Bill had piled more uncertainty on businesses.
It came as the Bank’s Monetary Policy Committee (MPC) cut interest rates by 0.25 percentage points to four per cent after a knife-edge five to four vote, which required a second polling.
The move is alarming news for savers, who will now be paid a lower rate of interest on their nest eggs, but will delight mortgage holders.
It is now anticipated that overall inflation would reach 4 per cent later this year, exceeding the Bank’s earlier projections and double its objective of 2 per cent.
Bank governor Andrew Bailey said interest rates remain on a ‘downward path’ but cautioned ‘there is genuine uncertainty about the course of that direction’.
The Bank’s Monetary Policy report, published alongside the rates cut, said that ‘domestic labour costs are an important driver of food price inflation’, partially due to the 6.7 per cent rise in the National Living Wage.
‘Overall labour costs of supermarkets are likely to have been disproportionately affected by the lower threshold at which employers start paying NICs in part because a relatively high proportion of supermarket staff is employed part-time,’ the report read.
Food prices have already increased by 1 per cent to 2 per cent due to higher staffing expenses, and a new packaging tax is anticipated to put more strain on stores later this year.
Ms Reeves – visiting Port Talbot in South Wales to announce £143 million towards securing decrepit coal tips – said: ‘This fifth interest rate cut since the election is welcome news, helping bring down the cost of mortgages and loans for families and businesses.’
But Shadow Chancellor Sir Mel Stride told the Daily Mail that Mrs Reeves’ choices would make it harder for people to put food on the table, adding: ‘Labour’s economic mismanagement is turning the screw on hard-working families. Many firms have no choice but to pass costs on to consumers.’
According to the Bank analysis, consumers have already made an effort to cut back on their grocery expenditure by purchasing larger value packs, cheaper meat cuts, and own-brand goods.
Grocers have also reported robust sales of ‘premium ready meals’ as Britons hold back on eating out in a bid to save money.
As well as hiking prices, businesses have endeavoured to preserve money by reducing staffing levels through redundancies and imposing hiring freezes, the report found. Bosses said they are looking at replacing workers with automation and artificial intelligence, as well as offshoring jobs.
Helen Dickinson, chief executive at the British Retail Consortium (BRC), said government policies would add £7 billion to retailer costs this year.
‘Food prices have already been climbing steadily, and the BRC has warned this is only the beginning,’ she said.
‘If the Autumn Budget once again lands on the shoulders of retailers, then it will only serve to fan the flames of food inflation, with poorer families being hit the hardest by the Treasury’s decisions.’
Ms Dickinson added that retailers ‘ability to absorb further costs is extremely limited’.
‘It will be ordinary households who suffer the most,’ she said.
The Bank’s nine-person MPC was divided three ways before taking an unprecedented second vote on interest rates. Four voted for a quarter-point drop, four to keep the status quo and one for a half-point fall.
The end result was that five, including Bailey, voted to slash rates while four, including the Bank’s chief economist, Huw Pill, wanted to keep borrowing costs on hold.
‘This group seems to be particularly concerned about the impact of recent higher inflation rates, particularly for food and fuel, on inflation expectations,’ Oxford Economics chief economist Andrew Goodwin said.
‘This suggests these members are unlikely to vote for cuts again until they see evidence of inflationary pressures cooling in these categories.’
Like all the previous Labour ministers, Labour lacks economic literacy. Do any of them have any prior experience working in the private sector? You know, the one that, at our expense, provides them with enormous pensions and earnings.
Rachel Reeves is quite honestly not fit to run a bath. She and her colleagues have done more damage in the last 12 months than the previous incumbents did in thirty years.
The British public now despises Rachel Reeves and Keir Starmer, who are like a double comedy act.
People are now shopping on the bread line with no indulgences, only essentials.
All food has increased in price, with some items in supermarkets being kept under lock and key.
Years ago, you could go shopping and look at your shopping trolley and roughly speculate how much your shopping was going to be, but now I get to the checkout and have the shock of my life – I want to buy the items, not take out a damn mortgage so that I can have them!
THE MONTHLY MOSQUITO 