UK Food Prices Rebound to 2% Inflation in Sept Amid Strong Consumer Spending

2024-06-10 106 Comments

Data released by research firm Kantar on Tuesday showed that in the four weeks ending September 29, UK grocery prices rose by 2%, higher than the previous month's 1.7%. Kantar said that the fastest rising prices were for frozen beverages and chocolate confectionery, indicating that record high cocoa prices caused by poor harvests in West Africa are beginning to affect the market. In addition, a survey released by the British Retail Consortium on Tuesday showed that store spending in September grew by 2.0% year-on-year, the strongest growth since a 3.5% increase in March.

Meanwhile, the Bank of England is considering how quickly to reduce interest rates. The Bank of England cut rates by 25 basis points in August, the central bank's first rate cut since the pandemic. The Bank of England held steady last month but has two policy meetings left in November and December this year. Bank of England Governor Bailey hinted last week that the central bank may cut rates more aggressively if inflation remains low.

It is worth noting that UK Chancellor of the Exchequer Rachel Reeves will announce her first annual budget since taking office on October 30. The market is currently worried that the upcoming budget will increase taxes and household energy spending may rise. It is known that from October 1, regulated energy prices in the UK rose by 10%, and annual electricity bills will increase to £1,717 (about $2,244).

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Linda Ellett, head of consumer, retail, and leisure at KPMG in the UK, said: "With energy prices rising again, all eyes are now on the budget and what impact this will have on household discretionary spending in the last quarter of the year."

In addition, another survey released by Barclays on Tuesday showed that after a year-on-year increase of 1.0% in August, credit card and debit card spending in September increased by 1.2% year-on-year, the largest increase since April. However, in real terms, this indicates that UK consumer price inflation remained at 2.2% in September, slightly above the Bank of England's 2% target.

Barclays said that UK consumer spending on non-essentials in September rose to its highest level since June; entertainment spending increased by 14.4%, the largest increase since July 2023. In contrast, UK consumer spending on essentials in September recorded the largest decline since April 2020, with grocery spending falling for the first time since June. Barclays attributed the significant increase in UK consumer spending on entertainment in September to the start of ticket sales for concerts by the British rock band Oasis, which reunited after 15 years of disbandment.

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