Are better times ahead for the UK food system?
Times have been challenging, frustrating, for most firms participating of food supply chains in recent times. Big left field events, a far from competent UK government, supply-side constraints, and an immensely competitive industry tends to make for such challenge with wins hard gained.
Despite a plethora of politicised news and opinion, could we be through the worst of the present UK consumer economic cycle? Well, given the bizarre and dramatic arrival of the Coronavirus in late 2019 and the horrendous actions by the psychotic dictator that is Putin, it would be foolish to make carte blanche statements that things can only get better. However, the data may just be saying so.
The last few years have been tough for many people; those who lost loved ones in the pandemic, young people couped up, those waiting for treatment and folks who have experienced genuine mental health issues. There have also been those who, frankly, have taken the piss, including many highly paid public servants who now believe that they have a right to work at home.
The rise in inflation, something that was pretty obvious in 2019 to kindergarten economists, but not those on the rarified and somewhat privileged UK Monetary Policy Committee, served to fuel a contraction in UK living standards, with hugely elevated energy prices and then upward food pressure hitting the poorest households most; the Conservative Government really has not looked after the low income workers as opposed to those on work related benefits and pensioners.
The term ‘cost of living crisis’ was understandably coined by those of the left of the political spectrum with some success as the BBC employed a cost-of-living correspondent; the Beeb also deployed the Resolution Foundation as its sole lexicon of economic opinion. UK ONS CPI peaked in October 2022 and it is true to say that it has been sticky, certainly hanging around at a higher than anticipated level than I expected by Easter 2023. That sticky inflation has led an MPC to concentrate on the data, noting it is future not present data that is most important, to raise UK base rates to over 5% in 18 months from 0.1%.
That base rates were 0.1% was crazy going into the present inflationary cycle. Given the extended amount of time that it takes for base rates to cool economic activity, the MPC would do well to pause for breath now as current core UK inflation is not the measure it should be obsessed about. Inflation is easing, disinflation rather than deflation, and is expected to be c5% (+/-1% by Shore Capital) by the end of 2023, something that UK Government now targets; it is staggering how the Chancellor speaks to successfully bringing inflation down, when he had no part in it rising, ho hum.
Less spoken about is UK wages and salaries with a rate of growth in July 2023 of 7-8%, so ahead of UK ONS CPI of 6.9%. Accordingly, with wages now rising ahead of inflation, living standards are rising and, the phrase cost of living crisis is temporarily or otherwise inappropriate. With CPI set to ease back further and wages following with a lag, UK living standards look to be rising for quite a while.
Higher base rates have differential outcomes depending upon whether one is a saver or borrower. Clearly, for those re-mortgaging, present times are a real worry. However, context is necessary, as more than half of all of the owned homes in the UK are done so outright whilst higher interest rates benefit savers. Key to future prospects to me is base rates peaking, which I believe is close. Indeed, as muted, there is a strong case for base rates to pause for breath to take effect and so not cut economic activity that amounts to meat and bone, with undesirable employment implications.
Indeed, the UK job market has been the Godsend of the recent economic cycle, one many folks scratched their heads about relative to GDP until the ONS had to admit in recent weeks that UK GDP has been materially stronger than it has revealed, the UK economy not performing as badly against the G7, much to the crowing of the anti-British at home and abroad, and a huge embarrassment to the national statistician.
So, whilst not out of the woods, with inflation easing, wages rising ahead of prices, base rates peaking, the labour market remaining resilient, and house prices necessarily correcting over crashing, the narrative for the UK consumer economy could be improving, which is what we see in the GfK NOP consumer confidence data, which is well off its October 2022 lows. Calling victory too soon is not clever, but the UK consumer economy could well be past the point where the tide is out furthest with gradual improvements set to build consumer industry volumes and mix.
Better times could just be ahead, not that a whole host of folks would, seemingly, welcome such developments. Maybe the BBC will have the rising living standards correspondent to commemorate changing UK economic circumstances?
For firms, there remains much to think about in COGs, cost control, processes, and procedures. Coriolis is expert in contributing to necessary improvement in a friendly and constructive manner. Do give Mark Dudley a call if you want a natter…
Dr Clive Black