Supermarket prices set to go up at least 5% next year

Former head of Sainsbury’s, Justin King has warned that shoppers can expect supermarket prices to rise by at least 5% next year as a result of Brexit. He made the comments to BBC Newsnight saying that the depreciation of the pound made price increases inevitable for items sourced in another country.

Something of around 40 per cent to 50 per cent of what we buy in the shops is sourced abroad in a currency other than the pound, and with the current rates of exchange we could expect that to be about 10 per cent more expensive in a year’s time. And if that’s about half of what we buy, that means something of the order of 5 per cent inflation.”

Justin King

He also added that it may be years before we see the effects of Brexit on consumer confidence. King used the the 2008-9 financial crisis as an example.

I think back to the financial crisis and there was a lot of conversation about why we didn’t immediately see the effects on the consumer,”

It was 2010 when consumers changed the way they shopped. That’s the timeline we are talking about.”

Justin King

Some big name brands have already indicated that price rises were likely as a result of the fall in the pound’s value. They include Unilever, Birds Eye and Walkers.

Aldi & Lidl costs also on the rise

Brexit fallout from the lower pound is also hitting discount chains Aldi and Lidl. They have recently increased the prices of basic groceries such as milk and bananas by 4-6% bringing them more in line with supermarket prices.

Why the pound’s value matters so much

The cost of commodities is usually priced in dollars.That covers a whole swathe of products from bananas to metals. And any decrease in a country’s currency against the dollar will increase the cost of those items in that country.

This is before you factor in trading costs – which, if the UK leaves the single market, will increase the costs of goods even more. As well as impacting goods that we import, it makes goods that we export more expensive (and less attractive) to other countries.

EU models for a post-Brexit UK

Here’s a handy video the FT have done on the UK’s trading options…

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