Warning of possible 'considerable and unpredictable' fluctuations in food prices

Households could face "considerable and unpredictable" fluctuations in food prices as a result of tariff changes and shifts in the sterling exchange rate following Brexit, according to analysis by an economic think tank.

Poorer families will be more exposed to any price increases because they spend a greater proportion of their income on food than wealthier households, the Institute for Fiscal Studies (IFS) said.

Around 30% of food purchased in the UK is imported, mainly from the European Union, and if the Government fails to secure a free trade deal with Brussels "it is likely tariffs will be imposed" on those products, directly affecting the cost of getting goods onto supermarket shelves.

Warning of possible 'considerable and unpredictable' fluctuations in food prices

The IFS analysis said it was "too early to tell" what impact the 13% depreciation in sterling between January 2016 and March 2017 will have on shopping bills but there is "evidence that producer prices for food have increased since the referendum".

The report said: "Tariff changes and movements in the exchange rate directly affect the cost of getting imported food products onto supermarket shelves. This will feed into the prices faced by consumers for imported goods.

"The extent to which tariff changes and exchange rate movements feed through to prices is uncertain and may vary across goods."

Domestic producers could also take advantage of competitors' rising import costs to hike their own prices in order to boost profits.

The analysis also showed that poorer households would be hardest hit by increased food prices - but most likely to benefit from any trade deals or sterling appreciation which reduce costs.

The share of total spending on food more than halves from an average of 23% in the poorest tenth of households to an average of 10% in the richest tenth.

The IFS report said: "There is a great deal of uncertainty over what the nature of the UK's post-Brexit trading arrangements will be.

"Decisions over post-Brexit membership of the single market and participation in the customs union will have profound effects on the price and import mix of the foods on UK supermarket shelves.

"It is also unclear whether sterling will depreciate further - or appreciate - as Brexit proceeds. These uncertainties over tariffs and the exchange rate mean that UK households are potentially going to be affected by considerable and unpredictable changes in food prices, with the poorest households much more exposed to this risk than the richest households."

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