Business
Milk and cheese drive food price inflation
Food prices are rising at their fastest rate for 45 years, with the cost of basics such as milk, cheese and eggs surging.
Food price inflation hit 16.2% in the year to October, up from 14.5% in September, latest figures show.
Energy and fuel costs also rose sharply, pushing the overall inflation rate to its highest level since 1981.
The surging cost of living is squeezing household budgets, leaving many people facing hardship.
The Office for National Statistics (ONS) said it was hitting poorer households hardest, as they spent around half of their income on food and energy, compared to about a third for those on middle incomes.
October’s overall inflation rate, of 11.1%, is the highest for 41 years and up from 10.1% in September.
The latest figures come ahead of Thursday’s Autumn Statement, in which Chancellor Jeremy Hunt is expected to announce billions of pounds worth of public spending cuts and tax rises.
Mr Hunt said his plans would aim to bring spiralling price rises under control, adding that he would take “tough but necessary decisions” to get the economy back on track.
But Labour’s shadow chancellor Rachel Reeves said the surging inflation rate would “strike more fear in the heart of families across Britain” and blamed “12 years of Tory economic failure”.
Inflation is a measure of the cost of living and to calculate it, the Office for National Statistics (ONS) keeps track of the prices of hundreds of everyday items, known as a “basket of goods”.
The ONS said that food prices had risen sharply in October with milk, pasta, margarine, eggs and cereals all going up.
I’ve been conducting a very unscientific experiment by buying the same 10 basic items in Aldi almost every month since May, and yesterday’s bill was another increase.
My shopping list of exactly the same bread, pizza, chips, loo roll, eggs, potatoes, sugar, oats, cornflakes, and nappies has gone up from £14.20 in May to £16.29 yesterday. That’s a 14.7% rise in just six months.
It gives a real sense of what we’re all facing at the tills, wherever you shop, and also gives a little glimpse into what the November figures will show us when they are published next month.
If anyone was hoping for a reduction in food inflation then it doesn’t seem like it’s happening just yet.
However, gas and electricity prices were still the main drivers of inflation after bills climbed again last month.
The government’s Energy Price Guarantee scheme did mitigate those rises, limiting the average household bill to around £2,500 a year.
But the ONS said gas and electricity prices were still up by nearly 130% and 66% respectively compared with a year ago.
Without the government’s support, however, it said overall inflation would have risen to as high as 13.8%.
Greg Pilley is the founder of the Stroud Brewery & Taproom in Gloucestershire, which supplies beer to pubs and shops. He told the BBC his business has been hit by a 10% rise in costs.
“Electricity has doubled over the last year,” he said. “We’re paying £70,000 a year compared to £30,000 in the previous year, but also raw materials are going up by between 10-15%.”
He said he’d had to put his prices up, while he was also paying much more in wages.
“The future is fairly unpredictable,” Mr Pilley said. “We’ve got to sell three times as much beer… just to stay in the same place.”
Energy and food prices have been rising since last year because of the war in Ukraine and the impact of the Covid pandemic.
Rising prices have led to workers across a number of sectors calling for pay increases in line with the higher cost of living, with some industries such as the railways, staging strikes.
However, some economists suggest October’s 11.1% inflation rate could be the peak.
Paul Dales, chief UK economist at Capital Economics, said prices could begin to slow down “if the government continues to freeze [energy] prices in some way”.
“There is growing evidence that the upward pressure on core inflation from global factors is now fading,” he added.
Dame Deanne Julius, former member of the Bank of England’s Monetary Policy Committee which sets interest rates, also said some of the elements driving inflation – aside from energy bills and food prices – were stabilising.
If inflation falls, it won’t mean prices will come down, it means prices will rise at a slower rate.
The Bank of England has put up interest rates to 3% in a bid to cool inflation. It hopes that by making borrowing money more expensive, people will spend less, demand will decrease and the pace of price rises will be curbed.
But higher rates are driving up the cost of mortgages and other loans.
The squeeze on spending is dragging on the UK economy which is likely to enter a recession at the end of the year.
Latest figures showed the economy contracted by 0.2% between July and September and the Bank of England has warned the UK is facing a tough two-year downturn.
A recession is defined as when an economy shrinks for two three-month periods in a row. It’s a sign an economy is performing badly, with companies often making less money and unemployment rising.
Countries around the world are experiencing higher inflation. The rate in Germany is higher than in the UK, at 11.6%, while prices rose by 7.7% in the year to October in the US.
The prospective new owner of Royal Mail has said he will not walk away from the requirement to deliver letters throughout the UK six days a week, as long as he is running the service.
“As long as I’m alive, I completely exclude this,” Czech billionaire Daniel Kretinsky told the BBC.
Mr Kretinsky has had a £3.6bn offer for Royal Mail accepted by its board.
Shareholders are expected to approve the deal in the coming months, but the government also has a say over whether it goes ahead.
Currently the Universal Service Obligation (USO) requires Royal Mail to deliver letters six days a week throughout the country for the same price. But questions have been raised over whether the service could be reduced in the future.
In an exclusive interview with the BBC, Mr Kretinsky also said he would be willing to share profits with employees, if given the go-ahead to buy the group.
However, he appeared to reject the idea of employees having a stake in Royal Mail, which unions have called for in exchange for their support.
The Royal Mail board agreed a £3.6bn takeover offer from Mr Kretinsky in May for the 500-year-old organisation, which employs more than 150,000 people. Including assumed debts, the offer is worth £5bn.
But because Royal Mail is a nationally important company, the government has the power to scrutinise and potentially block the deal.
As well as keeping the new government on side, Mr Kretinsky also faces the task of convincing postal unions that the proposed deal will benefit employees.
The USO is a potential sticking point for both the government and unions.
Royal Mail is required by law to deliver letters six days a week and parcels five days a week to every address in the UK for a fixed price.
How well this has actually been working in practice is a different matter. Ten years ago, 92% of first class post arrived on time. By the end of last year it was down to 74%, according to the regulator Ofcom.
Last year the regulator fined Royal Mail £5.6m for failing to meet its delivery targets.
Royal Mail has been pushing for this obligation to be watered down. It wants to cut second class letter deliveries to every other weekday, saying this will save £300m, and lead to “fewer than 1,000” voluntary redundancies.
‘Unconditional commitment’
Mr Kretinsky has committed in writing to honouring the USO, but only for five years.
And after that, in theory, the new owners could just walk away from it.
However, Mr Kretinsky told the BBC: “As long as I’m alive, I completely exclude this, and I’m sure that anybody that would be my successor would absolutely understand this.
“I say this as an absolutely clear, unconditional commitment: Royal Mail is going to be the provider of Universal Service Obligation in the UK, I would say forever, as long as the service is going to be needed, and as long as we are going to be around.”
Mr Kretinsky added that the written five-year commitment was “the longest commitment that has ever been offered in a situation like this”.
Another potential stumbling block for the deal, however, is how the company will be structured.
Unions would like to see the company renationalised, but Dave Ward, general secretary of the Communication Workers Union (CWU), told the BBC that would be “difficult in the current political and economic environment”.
Instead, what the CWU is pushing for is “a different model of ownership” – that is, where the employees part-own the business.
To get its support for the takeover, the union wants employees to share ownership of the company, along with other concessions including board representation for workers.
It says profit sharing is “not going to be enough to deliver our support and the support of the workforce”.
If the union doesn’t get what it wants, it won’t rule out industrial action, Mr Ward said. Its members went on strike in 2022 and 2023.
Although Mr Kretinsky said he is “very open” to profit sharing, he is not in favour of shared ownership.
“I don’t think the ownership stake is the right model,” he said. “The logic is: share of profit, yes, [but an] ownership structure creates a lot of complexity.
“For instance, what happens if the employee leaves? He has shares, he is leaving, he is not working for the company, he [still] needs remunerating.”
Mr Kretinsky said he didn’t want to create “some anonymous structure” but instead “remunerate the people who are working for the company, and creating value for the company”.
The union is also concerned about job losses and changes to the terms and conditions of postal workers’ contracts.
Mr Kretinsky has guaranteed no compulsory redundancies or changes in terms and conditions but only until 2025.
“If we are more successful, and we have more parcels to be delivered, we need not less people, but we need more people,” he said. “So really, job cuts are not part of our plan at all.”
He said if the management, union and employees work together, “we will be successful”.
Another concern is the potential break-up of the business.
The profit for Royal Mail’s parent company last year was entirely generated by its German and Canadian logistics and parcels business, GLS. Royal Mail itself made a loss.
Mr Kretinsky has promised not to split off GLS or load the parent company with excessive debt, although borrowings will rise if the deal goes through.
But he has a way to go to convince the CWU.
“I can’t think of any other country in the world that would just just hand over its entire postal service to an overseas equity investor,” Mr Ward of the CWU said.
However, Mr Kretinsky said that the postal unions “do understand that we are on the same ship, and that we need this ship to be successful, and that if we are there, we don’t have any real problems to deal with, because the sky is blue, and it’s blue for everybody.”
The union cannot stop this deal but the government can block it under the National Security and Investment Act.
Business Secretary Jonathan Reynolds has said he will scrutinise the assurances and guarantees given and called on Mr Kretinsky to work constructively with the unions.
Mr Kretinsky may say that he and the unions are ultimately on the same ship but, as things stand, they are not on the same page.
Who is Daniel Kretinsky?
Daniel Kretinsky started his career as a lawyer in his hometown of Brno, before moving to Prague.
He then made serious money in Central and Eastern European energy interests.
This includes Eustream, which transports Russian gas via pipelines that run through Ukraine, the Czech Republic and Slovakia.
He then diversified into other investments, including an almost 10% stake in UK supermarket chain Sainsbury’s and a 27% share in Premier League club West Ham United.
The Czech businessman is worth about £6bn, according to reports.
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