Household food bills could be about to rise by a staggering 14% as a direct result of Britain’s decision to exit the European Union due to the predicted fall in the Pound against both the Euro and the Dollar.
Britain produces around 54% of the food we consume, with a further 27% coming from the EU and 19% from the rest of the world. The direct impact of the drop in the value of the pound on the cost of that food will be substantial, and will be felt in the pockets of the British people in a matter of weeks.
Since entering the EU, inflation in the British economy has remained relatively low (between 2007 and their peak in 2012 food prices increased by an average of just 1.6% a year) but all that is about to change as the British economy contracts following the EU referendum.
In the first day of post referendum trading the Pound fell 8% against the dollar and 5% against the Euro, but it is predicted that there could be a further 10% drop as the markets adjust to take account of the massive contraction of the value of the British economy, which in one day dropped from the second to the third largest economy in Europe having been overtaken by France.
The value of the pound has a direct impact on the cost of the food that we eat, the lower the pound and the more we have to spend on the food that we import and therefore the higher the cost of the food we buy.
Sources and notes:
Food Statistics Pocketbook 2015 In Year Update: DEFRA | © Crown copyright 2016
- Total consumer expenditure on food, drink and catering in 2014. On average, around 11% of all household spending is on food. (p.6)
- Food prices rose 11.5% in real terms between 2007 and their peak in June 2012 as measured by the Consumer Price Index, following a long period in which they had fallen. Gradual price reductions since 2013 have reduced that real terms increase to 8.0% compared to 2007.
- The pound’s dramatic fall started overnight as the outcome of the referendum became clear. At one stage, it hit $1.3236, a fall of more than 10%. By early afternoon, it had partially recovered, but was still nearly 8% down on the day.
- Against the euro, the pound dropped 7% to about €1.2085. By Friday lunchtime, it had risen again but was still 5.3% down on the day.