“These prices are disgusting” is the common retort from shoppers browsing the supermarket shelves. To say that the cost of everything from a pint of milk to a loaf of bread has changed beyond recognition in only a few years is an understatement. But it could still get worse.
The warning from the Bank of England last week that food prices are stirring the inflation beast that has stalked Britain for the past four years shows that the cost of living crisis is far from over. The headline rate of inflation is expected to hit 4% by September, in a reawakening fed by the soaring cost of things such as butter, chocolate and beef.
Keeping inflation in check is a high-stakes job. Successive governments have foundered on the promise of putting more money in people’s pockets, only for voters to find that their hard-earned cash barely covers the rising cost of bills, food and other essentials.
For Rishi Sunak, it was clearly a mistake to gamble the last election on a bet that a halving in the headline rate of inflation would help households forget the previous 14 years of pain. Real living standards went backwards in the Tory years. For Keir Starmer, the same could be true if the change Labour promised does not begin to materialise soon.
Last week, the prime minister used the promise of putting more pounds in your pocket to deflect rumours of an autumn budget laden with tax increases. “The focus [at the budget] will very much be on living standards and making sure people feel better off,” he said.
However, Threadneedle Street’s dire forecasts showed Labour has added to the problems of high inflation, as food producers and retailers pass on the higher costs of employment triggered by Rachel Reeves’s £25bn increase in employer national insurance contributions.
Despite a global rise in food price inflation, the Bank warned that Britain was still an outlier, with an annual rate 1.5% higher than in the euro area. “Higher labour costs are contributing to food price inflation in the UK,” it added.
For the government, this is worrying stuff. Particularly as inflation driven by rising food prices is felt most by the poorest households in society – at a time when Labour has a job to prove that tackling poverty remains a top priority.
Food price inflation hits those on low incomes most because they spend disproportionately more of their monthly budgets on the essentials of life compared with the wealthiest, who have more room to cut discretionary spending. While the poorest fifth spend 14.4% on food and drink, the figure is 8.5% for the richest.
For Labour’s political opponents, and for Nigel Farage and Reform in particular, this is a gift. Starmer actively making the problems Labour sets out to fix worse, with the poor paying the price, is already the message Reform is using to target working-class voters on the doorstep.
Starmer and Reeves should be mindful that an autumn budget that fails to acknowledge the renewed inflationary pain for hard-pressed households will only make defeating Farage harder.
However, despite the bad news from the Bank last week, its grim inflation forecast also gave Labour evidence to show voters why Farage would have all the wrong answers.
For some time economists have been warning that Britain is exposed to growing dangers from “climateflation” – when extreme weather, droughts and floods drive up living costs. To some, including Farage, this might sound like an abstract risk more likely to afflict countries far from our cold, wet shores.
However, the Bank showed that the danger has already moved from risk to reality, highlighting how worsening climate conditions are adding to this latest inflationary burst.
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Its latest report showed dry weather in the UK and elsewhere was among the contributing factors in pumping up the price of beef because lower grass growth means cows must be fed silage earlier in the year, which is costlier.
The price of coffee and cocoa has been pushed up by droughts in key producer countries, including Brazil, while rainfall and plant disease outbreaks have hit harvests in west Africa.
The Bank reckons roughly half of current food price inflation can be linked to government tax increases, which will be digested and gone in time. The other half – from global heating – is only going to get worse.
Most of the food Britain consumes – about 58% – is domestically produced. But international food prices still have a material impact. That is because many food items are globally traded goods, with prices determined by world markets.
Erecting Brexit barriers with the EU – the source of 24% of food supplies – has not helped. Meanwhile, only 33 countries worldwide account for 90% of imported supply, raising the fragility of the UK supply chain by concentrating the risks in certain countries.
Throughout history climate conditions and wars have influenced the economy, including the Great Frost of 1709 leaving England with the worst recession – until the Covid pandemic – for three centuries, and the Great Famine forcing a quarter of Ireland’s population to emigrate in the 19th century.
But the pace of climate change has increased dramatically – the result of human activities since the mid-1800s, and proceeding at a rate not seen in millennia. Add on top of that mounting geopolitical tensions, conflicts and a breakdown in global trade amid Donald Trump’s tariff war, and the picture is bleak.
Labour can show clearly that Farage’s pledge to scrap net zero is more than counterproductive. Failure to limit global heating, in which Britain can play a leading international role, would hurt the poorest households most.
