Pound Sterling Exchange Rate Slump Throws Cost Of Everyday Items Into Turmoil

Life for everyday families is about to become more expensive.

18/10/2016 17:10 | Updated 19 October 2016

British families are set to face rocketing prices at the till on a range of products and household items, experts have warned, as the cost of even UK-grown produce is hit by rising inflation

New figures from the ONS show that inflation in consumer prices has risen to the highest point for two years, at 1.0% from 0.6%, amid turmoil in the value of Sterling following the Brexit vote.

Clothing, furniture and imported food such as coffee could all feel an inflationary squeeze, while supplies of big name processed goods like Marmite and PG Tips have already been threatened by high-profile row between Unilever and Tesco.

But local produce such as British fruit and vegetables are especially susceptible to pressure from inflation because of a shorter supply chain - the speed at which it goes from field to fork.

Leonora Beck/AP
British produce is more susceptible inflation due to its shorter supply chain

“British apples in a supermarket are not grown abroad yet think about the oil needed for petrol to transport the apples,” Andrew Hood of economic think tank the Institute of Fiscal Studies (IFS) told The Huffington Post UK.

“In this sense, the effect of inflation could be quite widespread,” he said.

“It’s important not to simply divide things into what is produced at home or abroad.”

Yet imported food prices rose by around 12% in August, according to Standard Chartered.

5 Things You Buy That Are About To Become More Expensive

  • Fresh produce
    Artemis via Getty Images
    Fresh produce like British apples are more at risk of inflation than other goods thanks to their shorter route to market - for example, the fuel used to transport them is becoming more expensive, according to the IFS.
  • Marmite, and the rest
    Chris Radburn/PA Wire
    The high-profile row between Unilever and Tesco highlights the current pressure on prices. It's not clear what deal was struck, but it's likely to be a compromise on the original demand of a 10% increase on Marmite, Pot Noodle and PG Tips, according to Mintel Retail.
  • Imported foods
    Daniele Carotenuto Photography via Getty Images
    Imported goods like coffee have risen in price by 12% in recent months, Sarah Hewin of Standard Chartered said. Increasing costs of raw materials look set to challenge manufacturers.
  • Clothing
    The cost of clothing is likely to increase over the next year, with Next predicting a rise of around 5% - while retailers have bought next season's clobber, the future is less certain.
  • Furniture
    Laurence Dutton via Getty Images
    While furniture has a longer supply chain, firms like Ercol in Buckinghamshire are preparing to tinker with prices as the cost of raw materials like metal and wood increases.

Richard Lims, chief executive of advisors Retail Economics, told HuffPost UK that big supermarkets typically make just three or four pence profit for every pound taken.

“If costs are going up they will have to pass some of the increases on to consumers,” he said referring to last week’s spat between Unilever and Tesco as symptomatic of current trading conditions.

And experts warned these increases have come before Britain’s Article 50 negotiations to leave the EU have begun.

“Article 50 hasn’t even been triggered, so we don’t know what the detangling will look like or what the negotiations will bring,” Lims added.

Experts expressed surprise at non-food items affected by inflation last month.

Increases in prices of clothes and shoes drove much of last month's inflation

Richard Perks, director of Mintel Retail said: “I found the inflation figures a bit of a surprise. It’s actually been clothing which has increased most.”

The chief executive of high street chain Next, Simon Wolfson, has said previously that he is preparing to pass on price increases of up to 5% in the coming months.

“The vast majority of clothing is imported but there has been a switch into sourcing clothes in the UK,” Perks added.

In the longer term, if inflation continues to increase, goods like furniture will become more costly.

Toby Melville / Reuters
Rising costs of raw materials means furniture will likely become more expensive in the coming months

Nick Garratt of Ercol furniture company told the Today programme: “The weaker pound does affect our business. We are buying in a lot of materials from overseas.

“Particularly timber for example we’ve seen a 16% increase in the pound price of our raw materials.

“We’ll try not to pass on all of that cost but we do see some price rises going over to our customers.”

Sarah Hewin, of Standard Chartered bank, said: “We’ve got used to inflation being closed to zero over the past year or so and we think this is just the start of a sustained rise in inflation over the next few months.

“We think we could go as high as 3% by the middle of next year depending on what happens to commodity prices and it seems likely to us that inflation will be above 2% in the next couple of years.”

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