Insight: no Brexit deal could push up price of Full English ingredients
A new study has predicted that if the UK were to leave the EU without a trade deal or transitional agreement, British consumers could incur price increases of more than four times the rate of inflation for the key ingredients of a fry-up breakfast.
According to KPMG UK, the total cost of a typical family-sized shopping list for ingredients such as bacon, sausages, olive oil and brown sauce would increase from £23.59 to £26.61 – an increase of 12.8 %.
With the UK likely to default to the World Trade Organisation’s customs rules if it were to leave the EU with no transitional agreement or trade deal on or before March 2019, KPMG said imported goods, particularly food and drink items, would be among the hardest hit by increased tariffs.
Bob Jones, director and Brexit customs and Indirect tax lead at KPMG UK, said: “WTO tariffs could have a significant impact on both consumers and retailers alike – totting up consumer price tags and further squeezing retail margins. It’s important to remember that our analysis does not even reflect the steep costs consumers and retailers are already facing as a result of the pound sterling’s devaluation or the costs of any new non-tariff barriers.
“If the UK leaves the EU without a trade deal or transitional agreement, we can expect both higher prices and a huge spike in red tape at the borders. As such, the top priority for businesses is to fully understand their own supply chains: the volumes and values of the goods they ship back and forth and which countries they’re importing to and from. Only then can businesses obtain a degree of insight into their own operations and exposure to risk.”
To illustrate the impact of defaulting to WTO rules, KPMG UK analysed the cost of mid-range ingredients of a fry-up from a leading UK supermarket, and applied the current EU external customs tariffs to each, whilst also taking into account the grocer’s mark-up.
Pure orange juice and olive oil were among the items set to incur the biggest increase, at 34% and 30% respectively. In addition, the cost of bacon and sausages were predicted to rise by 9% and 20% respectively.
Milk, free range eggs and sliced white bread were all sourced from the UK in the analysis, however the other items were intentionally imported for demonstrative purposes.
Paul Martin, UK head of retail at KPMG, added: “Most retailers underestimate the potential cost of customs tariffs, however not only do they need to understand their immediate supply chain better, but the supply chains of their supplier’s supplier too, as all will have an impact.
“The British consumer has become accustomed to seasonal produce all year round and has binged on a diet of discounts for some time. With that in mind, our analysis, which focussing mainly on imported goods, isn’t too unrealistic.
“Shoppers could be forgiven for overlooking the significant impact customs will have on the prices they pay at the till. However, against a backdrop of increasingly squeezed margins, it is unlikely retailers will be able to hold the flood on higher costs indefinitely.”
