Brexit Caused a Third of UK Food Price Inflation, LSE Paper Says

(Bloomberg) — Brexit is responsible for a third of UK food price inflation since 2019, according to research by the London School of Economics that undermines efforts by the government to show the EU divorce has benefited Britain.

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Regulatory, sanitary and other border checks added almost £7 billion ($8.7 billion) to total domestic grocery bills over the period from December 2019 to March 2023 — or £250 per household, economists at the LSE’s Centre for Economic Performance said. Prices rose by 25% over the period rather than the 17% they would have gained if Britain had stayed in the EU single market, they said.

The findings come amid signs that inflation is becoming entrenched and the cost-of-living crisis is now a largely domestic problem. With YouGov polling showing that more than two thirds of Britons say the government is handling the EU departure badly, they also pile pressure on Prime Minister Rishi Sunak to show that he’s delivering benefits of Brexit.

Sunak told reporters last week on a visit to Japan that he believes in Brexit and that his Conservative government has already delivered benefits including a cut to sales tax on sanitary products, reforms to alcohol duties that will result in cheaper beer in pubs, and reforms to financial services regulations.

But that’s not persuading the British electorate. A YouGov survey on Sunday showed 68% of Britons think the government is handling Brexit badly, versus 22% who said it’s going well.

Britain’s post-Brexit trading arrangements formally began in January 2021. Since then, food categories with a high reliance on imports from the EU such as meat and cheese have seen price increases “in the region of 10 percentage points higher relative to similar products not exposed to Brexit,” the LSE paper found.

The authors said Covid and the war in Ukraine did not affect their findings. “The fact that the results are driven entirely by products with high non-tariff barriers imported from the EU offers strong evidence that Brexit is the driving force behind these effects,” they said.

Food prices in April supplanted energy as the main cause of forecast-beating inflation, the Office for National Statistics said on Wednesday.

That’s a cause of concern for Sunak, who said it’s “too high.” Chancellor of the Exchequer Jeremy Hunt called a meeting of food manufacturers this week to ask “industry to work with us as we halve inflation, to help ease the pressure on household budgets.”

Sunak has promised to provide an extra 10,000 temporary visas for agricultural workers next year to ease wage pressures, and the Competition and Markets Authority is investigating the fuel and grocery sectors to see if there is any price gouging that it can stamp out.

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