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Analysis

‘No deal’ price hikes would dwarf current 3% inflation

by Luke Lythgoe | 17.10.2017

Shoppers are already squeezed by Brexit inflation. This will be dwarfed by tariffs on EU imports if no deal is reached.

The pound plunged after last year’s referendum. That’s pushing up prices of imports. New official statistics reveal consumer price inflation is now at 3% – having been at 0.5% in June 2016. Rising food prices are playing a big role in this. Food inflation is at 3.1%, the highest since October 2013. Falling food prices were helping bring down inflation before the Brexit vote.

Brexit extremists now want us to make a bad situation even worse by crashing out of the EU with no deal. That would see EU-UK trade fall back on World Trade Organisation rules, with steep tariffs applied to food imported from the continent.

Around a quarter of all food sold by major UK retailers is imported, with four-fifths of that coming from the EU. If no deal was reached, the average EU tariffs on food products would be 22%, according to the British Retail Consortium (BRC). Tariffs on cheese could be 46%.

The average household will have to pay an extra £260 a year, according to a report by the Resolution Foundation and Sussex University. Poorer families will be hit hardest. How is this consistent with Theresa May’s aim to create an economy that “works for everyone”?

Hardline Brexiters insist food prices will fall as the UK frees itself from EU protectionism and buys cheaper produce from the rest of the world. This argument is flawed. It will take years to strike new trade deals and establish new supply chains. Liam Fox’s new trade department lacks expertise and many of his main trade targets will either drive hard bargains or prioritise ongoing negotiations with the EU.

There’s also the issue of public health. As a medium-sized economy, Britain can be bullied by bigger trading partners. We’ve already seen concerns about chlorine-washed chickens and hormone-pumped beef entering the UK under a potential trade deal with the US.

We could of course slash our tariffs unilaterally. But that would come at the expense of UK farmers who would struggle to compete with cheaper imports and get no improved access for their own products abroad.

In the meantime, shoppers are feeling the pinch in their pockets. That will become a vice-like grip if the government is reckless enough to follow through on its no-deal threat.

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Edited by Hugo Dixon

One Response to “‘No deal’ price hikes would dwarf current 3% inflation”

  • I think this 3% figure needs challenging …

    Butter from 85p to £1.45 … 70%
    Kidney beans from 18p to 30p … 66.6%
    tomato puree 35p to 50p, … 42.8%
    natural yoghurt 35p to 45p … 28.5%
    mushrooms 69p to 86p … 24.6%
    chickpeas 35p to 50p … 42.8%
    Hovis Wholemeal: 85p to 105p … 23.5%
    1kg white sugar .. 59 to 70p … 18.6%
    1.5kg plain flour 45 to 55p … 22.2%
    .co.uk domain name 7.99 to 17.99 … 125%