The Bank of England increased interest rates to 1.25% in June in an attempt to ease inflation which has spiked due to large rises in energy prices. We have seen UK100 fall 2.5% as this is the BoE’s fifth consecutive rate hike.
In general, this does not have a direct impact on food prices however, higher inflation means a weaker currency value so we see people reluctant to spend in shops.
A rise in interest rates will make Pound Sterling stronger against other currencies such as the Euro which could have a positive impact on food import costs. We have seen a big increase in food prices already this year so it is doubtful import costs will have a noticeable affect on the reduction of food prices.
Many businesses have debts such as loans without fixed repayment terms which will be affected by the higher interest rate as their repayment costs will go up. Businesses will ultimately try to make up for these additional expenses by passing the costs on to their customers through increased prices.
Francis Fabrizi
Accountant
Keirstone Limited
