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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Brits ‘need to accept’ they’re worse off and stop pushing wages and prices higher, says BoE chief economist – as it happened

Nestlé Ocado Inflation United States United Kingdom Hatfield Kantar Fraser McKevitt Aldi Lidl
Huw Pill, the Bank of England’s chief economist, says a ‘pass the parcel’ game of higher prices and wages is lifting inflation
Huw Pill, the Bank of England’s chief economist, says a ‘pass the parcel’ game of higher prices and wages is lifting inflation Photograph: Bloomberg/Getty Images

Afternoon summary

Time for a recap.

The chief economist of the Bank of England has declared that businesses and households should “accept that they’re worse off” due to the surge in energy prices.

Huw Pill told an economics podcast that a ‘pass the parcel’ game, in which people try to pass on the impact of inflation by seeking wage increases or lifting their prices, was driving the cost of living higher.

As Pill put it:

So somehow in the UK, someone needs to accept that they’re worse off and stop trying to maintain their real spending power by bidding up prices, whether higher wages or passing the energy costs through onto customers.

And what we’re facing now is that reluctance to accept that, yes, we’re all worse off, and we all have to take our share.

More here:

Several of the world’s best-known consumer goods firms have revealed how price increases have boosted their sales this year.

Nestlé, the Nespresso and Kit Kat maker, lifted its prices by 9.8% in the first quarter of this year, close to the fastest pace in more than three decades. It suffered little sales damage, with volumes down just 0.5% as consumer stumped up more for Nestlé’s food, drink and petfood.

McDonald’s benefitted from a price hike on its menus – such as pricier cheeseburgers – it reported that sales are up 12.6% compared with a year ago

And Pepsico, the drinks, food and snacks group, hiked its prices by 16%, which only pushed down its sales volumes by 2%.

These prices increases are hitting households. Data firm Kantar reports that grocery prices have risen by 17.3% over the last 12 months, a slight slowdown.

Fraser McKevitt, the head of retail and consumer insight at Kantar, warned it was “too early” to say grocery inflation had peaked.

“We’ve been here before when the rate fell at the end of 2022, only for it to rise again over the first quarter of this year.”

Bank of England deputy governor Ben Broadbent argued today that the Bank’s quantitative easing stimulus programme was not to blame for fuelling inflation, by boosting the money supply. Instead, he said, supply chain disruption and high energy prices were responsible.

Broadbent also predicted that inflation could be turning lower.

Here are the rest of today’s main stories:

Huw Pill’s comments are causing a stir:

Huw Pill’s claim that workers should not push for pay rises to protect themselves from rising prices “puts the BoE in conflict with thousands of public sector workers angry at the government over its decision to restrain pay,” Bloomberg says.

Updated

Bank of England’s Huw Pill: Brits 'need to accept' they're worse off

Huw Pill, the Bank of England’s chief economist, has declared that citizens and businesses “need to accept” they are poorer, and stop pushing prices higher and seeking pay increases.

Pill says a game of ‘pass the parcel’ is taking place in the economy – as households and companies try to pass on their higher costs.

Speaking to “Beyond Unprecedented: The Post-Pandemic Economy”, a podcast produced by Columbia Law School, Pill explains that it’s natural for a household to seek higher wages in response to soaring energy bills, or for a restaurant to increase its prices.

But in the end, he says, the UK is a big importer of natural gas, and its price has gone up a lot compared to the services which the UK sells to the rest of the world.

“If the cost of what you’re buying has gone up compared to what you’re selling, you’re going to be worse off,” Pill says.

He adds:

“So somehow in the UK, someone needs to accept that they’re worse off and stop trying to maintain their real spending power by bidding up prices, whether higher wages or passing the energy costs through onto customers.

And what we’re facing now is that reluctance to accept that, yes, we’re all worse off, and we all have to take our share.

[Instead, people] try and pass that cost on to one of our compatriots, and saying ‘we’ll be alright, but they will have to take our share too’.”

“That pass the parcel game that’s going on here….that game is generating inflation, and that part of inflation can persist.”

Pill’s comments come on a day in which Nestlé, Pepsico and McDonald’s have all reported that higher prices boosted their sales this year, and as families face 17.3% grocery inflation in supermarkets.

But he also risks adding to criticism that the Bank is ‘tin-eared’ over the cost of living crisis, with households facing the worst fall in living standards in decades.

During the podcast, Pill explains that the real goal of central bankers is price stability, to keep inflation at a level doesn’t influence people’s life decisions. The Bank’s target is to keep inflation at 2% in the medium term – but it has been running over 10% for several months.

Central banks are very focused on the persistent components of inflation, Pill explained, outlining it takes around 18 months for interest rate changes to affect the economy.

Pill says:

Inflation has been higher than we expected for longer, for an undesirably long time.

He explains that a series of shocks that have all pushed inflation in the same direction, meaning price pressures have not dissipated.

First, the Covid-19 pandemic disrupted supply in the economy, just as the US government were handing out stimulus cheques to citizens in the lockdown.

Just as the pandemic inflation shock was easing, Russia turned off gas supplies to Europe, driving up wholesale energy prices by over 1,000%.

“That had a massive contribution to inflation,” Pill says, and while gas prices have fallen recently from their Ukraine war highs, food price inflation is now acccelerating.

Updated

Yellen warns of 'economic catastrophe' if US debt ceiling not raised

U.S. Treasury Secretary Janet Yellen is warning of an “economic catastrophe” if Congress fails to raise the US government’s debt ceiling, leading the country to default on its borrowings.

Yellen, in remarks prepared for a Washington event with business executives from California, said a default on US debt would result in job losses, while driving household payments on mortgages, auto loans and credit cards higher.

She said it was a “basic responsibility” of Congress to increase or suspend the $31.4trn borrowing cap, warning that a default would threaten the economic progress that the United States has made since the COVID-19 pandemic.

Yellen told Sacramento Metropolitan Chamber of Commerce members that:

“A default on our debt would produce an economic and financial catastrophe.

“A default would raise the cost of borrowing into perpetuity. Future investments would become substantially more costly.”

With the calendar inching closer to June, when a default could occur, the path forward on raising the debt ceiling remains deeply unclear.

Despite pressure, Congress has yet to reach a deal to lift the limit on borrowing, as my colleague Joan E Greve reports:

The Republican House speaker, Kevin McCarthy, has attempted to kickstart talks with the White House on Wednesday by outlining his proposal to raise the debt ceiling in exchange for government spending cuts that would curtail implementation of Joe Biden’s landmark climate and healthcare legislation.

But that proposal may not be able to pass the House, given Republicans’ narrow majority. Even if the bill does make it through the House, the proposal has already been rejected by Joe Biden and Chuck Schumer, the Democratic Senate majority leader.

Updated

The Duke of Westminster’s property company, which owns swathes of London’s exclusive Mayfair and Belgravia districts, has paid out a £50m dividend despite falling profits.

The boss of Grosvenor, the duke’s £11.5bn property empire, warned of a period of stagflation and that UK interest rates and inflation could stay high for longer than expected, resulting in “more pain” for the commercial property market.

Mark Preston, the chief executive, predicted a “shakeout” in real estate, as the value of its offices and other commercial assets in the UK dropped by 3.7% year on year amid a downturn in the market, after 2.5% growth in 2021.

Even so, it paid a £49.9m dividend to the duke’s family and its trusts, after a £48.7m dividend in 2021. Grosvenor also owns rural estates and one of the largest farms in the UK, as well as investments in food and agritech firms.

News of the dividend comes as the Duke of Westminster, Hugh Grosvenor, turns his mind to his wedding.

Grosvenor, who is close friends with Prince William and godfather to Prince George, has announced his engagement to his girlfriend, Olivia Henson, who works for the London-based ethical food company Belazu.

Grosvenor, 32, owns more than 300 acres of some of London’s fanciest properties in Mayfair and Belgravia as part of a global, family-owned property empire valued at £9.5bn, making him the third richest person in the UK.

No wonder his father once famously described himm as being “born with the longest silver spoon anyone can have”….

Bloomberg’s Joe Weisenthal has tweeted the key chart showing how price rises, not sales volume growth, lifted Pepsico’s revenues:

Updated

Bank Syz: Welcome to greedflation

Many companies have taken advantage of the return of inflation to inflate their prices excessively, warns Charles-Henry Monchau, chief investment officer at Bank Syz, the Swiss boutique bank.

These price rises risk stimulating an inflationary spiral, Monchau warns in a research note titled “Welcome to greedflation”.

Monchau says:

The energy and food sectors made staggering profits in 2022. 95 companies made $306bn in windfall profits. But what is most striking are the profit margins. Some argue that the windfall profits are simply the product of companies passing on rising costs to consumers.

However, the increase in margins suggests that companies are taking advantage of the crisis to increase their profits. In other words, there is more inflation observed on the top line than on costs. A study by Equals found that 76% of companies increased their net profit margins in 2022. In the energy sector, 71% of companies increased their profit margins. According to the same study, 85% of food companies increased their margins.

Some subsectors saw particularly notable profit increases: synthetic fertilizer manufacturers increased their profits by an average of 10 times, meat companies by five times, while agricultural equipment and raw material traders increased their profits by almost two times.

Not surprisingly, Monchau adds, some of these industries are in the crosshairs of regulators:

The US meat industry has been targeted by the Biden administration’s plans to boost competition in the industry.

Updated

Associated British Foods, the firm behind Primark, says that most of its price rises are now in place.

Faced with surging energy and freight costs, ABF chief executive George Weston, said the company had raised its prices in the single digits, but “by less than costs, and less than others”, which meant profits suffered. Primark made a first-half operating profit of £351m, down by 15% from a year earlier. Childrenswear prices have been unchanged.

“The need for further price rises has reduced significantly just over the past few months,” he said.

Weston added:

“We’re quite confident that most of the price rises that consumers were going to see they’ve already seen. And then I hope we can get back to the world we were in for 10 years where we move prices down, not up.”

The firm said sea freight costs had returned to normal levels, and energy prices had also fallen, although the strength of the US dollar against sterling and the euro is driving up the cost of bought-in goods. Operating costs excluding exceptional items went up by 24% in the first half across the ABF group.

More here:

Kimberly-Clark, the US personal care products maker, has grown its sales on the back of higher prices.

The firm behind Andrex, Huggies and Kleenex has reported it raised prices by 10% in the first quarter of this year. This lifted organic sales by 5%, with sales volumes dropping 5%.

Kimberly-Clark chairman and CEO Mike Hsu says the “essential nature of our products” helped to lift sales.

“Our growth strategy continues to deliver behind strong execution of our commercial programs. Revenue growth management initiatives drove continued sales momentum with a better-than-expected elasticity impact on volume. Looking ahead, we have an exciting innovation pipeline that will deliver superior performance in health, wellness and sustainability.

Despite rising costs, Kimberly-Clark increased its profit margins.

Hsu says:

“While inflationary pressures have yet to subside, we drove continued improvement in our gross margin this quarter.

Here’s former global consumer fund manager Rahul Sharma on today’s results from Pepsico and Nestlé:

PepsiCo’s 16% price hikes boost sales and profits

Food, drinks and snacks group Pepsico has lifted its sales and profits forecasts this morning, after higher prices helped it to beat Wall Street estimates.

Pepsico reports that its average prices rose 16% in the first three months of this year, compared to Q1 2022, the latest example of a multinational hiking its prices.

This lifted its organic revenues by 14.3% in the last quarter, while sales volumes dipped by 2%.

Chairman and CEO Ramon Laguarta told shareholders that Pepsico now expects to make higher profits than forecast:

“We are very pleased with our performance and business momentum as our categories and geographies remained resilient during the first quarter.

Given our strong start to the year, we now expect our full-year 2023 organic revenue to increase 8% (previously 6%) and core constant currency EPS [earnings per share] to increase 9% (previously 8%).

Such earnings growth will bolster concerns about greedflation – where companies manage to grow their profits on the back of price rises which go beyond simply passing on higher costs.

Gross profits in the quarter rose to $9.86bn, up from $8.77bn a year ago.

Neil Wilson, chief markets analyst at Markets.com. says:

Prices up a huge 16% and volume down 2%. Sales rose to $17.8bn from $16.2bn, led entirely by pricing.

Updated

Prices increases lift McDonald's sales

Fast food giant McDonald’s has reported a jump in sales, helped by price rises.

McDonald’s grew its global comparable sales by 12.6% in the first quarter of this year, compared with a year ago.

Chris Kempczinski, McDonald’s president and chief executive officer, says “a healthy balance of strategic menu price increases and positive traffic growth” boosted the company’s takings in January to March.

Income jumped by 66% to $2.45 per share.

Last summer, it lifted the price of cheeseburger for the first time in over 14 years, taking it from 99p to £1.19.

Sales are stronger than expected, lifting McDonald’s shares 0.6% in premarket trading.

The latest healthcheck on Britain’s factory sector also shows that inflationary pressures are easing.

British factory orders and output contracted this month, while manufacturers stockpiled more finished goods, according to the CBI’s latest industrial trends survey.

It monthly gauge of industrial orders held at -20 in April, matching March’s two-year low

Cost pressures receded further, as wages and raw material costs rose at a slower rate.

The CBI’s Industrial Trends report (the longest running manufacturing survey in the UK). says:

“Growth in average costs per unit of output and growth in average domestic prices have now slowed for four successive quarters.

Manufacturers expect growth in costs and domestic prices to ease further in the quarter to July.”

Broadbent: inflation may be turning lower....

Back in London, the Bank of England deputy governor Ben Broadbent has said there are signs that inflation pressures are easing.

Broadbent told this morning’s event at NIESR (see earlier post) that:

“In the last three months, notwithstanding the release we had last week, there are signs in the official data and also in the surveys of some of that pressure starting to come off - not nearly to the extent that we need it to, but some of it just may be beginning to turn.”

Inflation only dropped to 10.1% in March, higher than expected, while this morning’s Kantar grocery data has shown a small drop in price rises in the last four weeks.

On Sunday, the BoE’s former chief economist, Andy Haldane, predicted inflation would soon head south:

Asked if the BoE would consider raising interest rates by half a percentage point at its next meeting in May, Broadbent said the central bank did not rule out specific moves before its monetary policy meetings, Reuters reports.

The money markets predict the Bank will raise borrowing costs by a quarter-of-one-percent next month, to 4.5%.

Alison Rose, NatWest’s CEO, tells shareholders at today’s Edinburgh AGM that UK households and businesses are struggling.

Rose explains:

I, and my Executive team, continue to monitor the market movements closely to ensure that we are well placed to continue supporting our customers.

Yet, despite not seeing significant signs of financial distress or changes in behaviour amongst our customers, we know that people, families, and businesses across the country are struggling.

Howard Davies to leave NatWest by next summer

NatWest chair Howard Davies, who is one of the longest serving bank bosses in the UK, is also preparing to step down by 2024:

Davies told shareholders at today’s AGM that a ‘rigorous search process’ will take place, so he can step down before he has spent nine years at the bank.

He says:

I am approaching the point where I will have served 8 years on the Board so it is appropriate to initiate the search for my successor as Chairman in the coming months.

This will allow time for a rigorous search process and an orderly handover, which I expect will take place at some point before I reach nine years tenure in July 2024.

That is the maximum recommended in the UK Corporate Governance Code. The search for my successor will be led jointly by the Senior Independent Directors of NatWest Group and NatWest Holdings.

NatWest chair: 'robust and resilient balance sheet' helped us through uncertainty

NatWest chairman Howard Davies has tried to assure shareholders gathered at the bank’s Gogarburn HQ for its AGM in Edinburgh this morning that the bank’s own fortunes were secure, despite last months’ banking crisis.

We’ll see whether shareholders are feeling as optimistic once we get to Q&As, but the chair said the bank had a “robust and resilient balance sheet” and was watching developments closely.

In opening remarks, Davies said:

“In the first few months of the year, we have already seen the impact that uncertainty and rising interest rates can have on the banking sector, with the collapse of Silicon Valley Bank in the United States and some other lenders there.

We also saw the acquisition of Credit Suisse by UBS, facilitated by the Swiss authorities. Ultimately, poor risk management and long-standing, idiosyncratic challenges were largely to blame for those failures. The NatWest Group, by contrast, has built a robust and resilient balance sheet with strong capital and liquidity, a largely secured retail loan book and well-diversified commercial lending.

Tight risk management underpins our strategy and ensures we are well-positioned for the future. We nonetheless continue to monitor customer activity and behaviours closely for signs of stress, taking action where appropriate.”

BoE's Broadbent: QE not responsible for surging inflation

Ben Broadbent, deputy governor of the Bank of England, is rebuffing claims that the Bank’s quantitative easing (QE) programme has fuelled the surge in inflation.

The Bank bought up £435bn of government bonds after the 2008 financial crisis, and boosted the total to almost £900bn once the Covid-19 pandemic hit the economy.

Today, Broadbent is giving a (long) speech to the National Institute of Economic and Social Research (NIESR), exploring whether the UK’s cost-of-living surge is due to the growth in broad money (the balance sheets of commercial banks), and whether both can be blamed on QE.

In a defence of the Bank’s policies, Broadbent argues that the highest inflation since the 1970s can’t be blamed on QE – which involves the creation of central bank reserves to buy financial assets from commercial banks.

Broadbent insists:

Certainly the very strongest claims – that QE inevitably leads to rapid growth of commercial bank deposits (M4), on a par with that in the central bank’s balance sheet; and that this, in turn, inevitably leads to excessive inflation – are not well supported by the evidence.

Broadbent points out that the first bout of QE, following the collapse of Lehman Brothers, did not spark a surge in prices. He says:

In the decade or so that passed between the first use of the policy in 2009 and the onset of the pandemic, reserves grew extremely rapidly.

Yet broad money growth was significantly slower than it had been before the crisis (Chart 1).

A graph from a speech by Ben Broadbent
A graph from a speech by Ben Broadbent Photograph: Bank of England

He adds:

And, in both periods, average inflation was close to 2% (Chart 2).

A chart from a speech by Ben Broadbent

So what did cause UK consumer price inflation to hit double-digit levels?

Broadbent says it’s clear – supply-chain problems in the pandemic which pushed up goods prices, followed by the surge in energy and food prices following the Ukraine war.

In this case it’s clear what those have been: the hits to the supply of non-energy goods during the pandemic, to those of energy and food during the war, and the resulting rise in their global prices.

Thanks to the significant hit to real incomes they involved, these shocks have also had sizeable second-round effects on domestic wages and prices.

As an explanation for the inflation we’ve experienced I think this fits the actual data better than the single fact of strong household money growth during the pandemic.

The 30-plus page speech is online here, and includes a handy explanation by Broadbent of the “IS-LM” model of how interest rates affect demand, which underpins macro-economics….. (although it rather pre-dates QE….)

A chart showing the IS-LM model

Updated

Thousands of London Underground workers are to vote on whether to continue a campaign of strike action in a long-running dispute over jobs and pensions.

More than 10,000 members of the Rail, Maritime and Transport union (RMT) will be re-balloted in the coming weeks, as the union seeks a fresh mandate for industrial action.

The union has been locked in a row with Transport for London (TfL) and the Mayor Sadiq Khan for nearly a year, over plans to cut jobs.

The union says other plans have raised the prospect of Tube workers losing over 30% of their pensions.

The ballot will run until the May 23 and the current mandate runs out in June.

RMT general secretary Mick Lynch said:

“Our members have taken several days of strike action over this last year and remain as determined as ever to get a just settlement on jobs, pensions and their working conditions.

“The Mayor is under pressure from central government, but he must join us in resisting them and refuse to allow ideologically motivated financial constraints to be used as an excuse to attack Tube workers.

“Transport for London has healthy revenue streams and our members are among the thousands of Tube staff that make it a successful transport provider.

“This re-ballot is vital to maintain the pressure on TfL and I urge all our members to vote yes in the postal ballot.”

First Republic woes weigh on markets

Anxiety over US regional bank First Republic is weighing on the stock markets today.

Last night, First Republic reported that its deposits fell by over $100bn in the first quarter of this year.

Shares fell over 20% in after-hours trading as First Republic, which recently received a $30bn lifeline, from major US banks, said it was exploring options including restructuring its balance sheet.

European indices are in the red this morning, with Italy’s FTSE MIB down 1%, Spain’s IBEX losing 1.25%.

In London, the FTSE 100 index is down 0.25% or 19 points at 7893 points.

Russ Mould, investment director at AJ Bell, says investors certainly lost their appetite for banking stocks this morning:

“First Republic Bank’s latest results have restarted the market’s worry engine, triggering a sell-off across Europe. Its shares fell 22% in after-hours trading after revealing a sharp decline in deposits, prompting speculation it could be the next bank to be taken over.

“There are already concerns that banks in many parts of the world will choose to be more selective over whom they lend to, which in turn could have negative implications for the economy.

Updated

Central banks end daily emergency dollar swaps

The world’s top central banks are ending the emergency action they took last month to keep dollars flowing through the global financial system.

The Bank of England, Bank of Japan, the European Central Bank, the Swiss National Bank have decided to end the daily dollar-swap lines they set up with the Federal Reserve to reassure markets after the collapse of Silicon Valley Bank.

They will return to holding weekly operations, a sign that calm has returned to markets.

The Bank of England says they decision was taken in view of the improvements in u.s. dollar funding conditions and the low demand at recent US dollar liquidity-providing operations.

The swap operations were designed to help central banks around the world to supply local banks with US dollars, an important safe haven asset, during times of market stress.

But actually, demand for the swaps proved to be relatively limited, as the problems at SVB and Credit Suisse did not trigger a repeat of the 2008 crisis.

Updated

UK public sector borrowing jumps, but there's good news for Hunt too....

The latest UK public finance figures show that government borrowing hit a near record in March.

Public sector net borrowing rose to £21.5bn in March, the second-highest March borrowing since monthly records began in 1993, and £16.3bn more than in March 2022.

Although public sector receipts rose by 2.3% to £88.8bn, helped by rising tax receipts, ths was offset by a 19.9% increase in public spending, to £110.3bn in March.

Spending was pushed up by the cost of capping energy costs for households and businesses, and the increased interest bill on inflation-linked government debt.

Today’s figures also show that the UK government borrowed £13.2bn less than expected in the last financial year.

Borrowing for the year to March was the fourth-highest on record at £139.2bn – below the £152.4bn forecast made last month by the Office for Budget Responsibility.

That may give the government some wriggle-room for tax cuts ahead of the next election.

This morning’s data shows the government spent £41.2bn over the past six months to support households and businesses with energy costs.

Chancellor Jeremy Hunt said the government was right to spend on energy support in the cost-of-living crisis, but warned “we cannot borrow forever”.

“These numbers reflect the inevitable consequences of borrowing eye-watering sums to help families and businesses through a pandemic and (Vladimir) Putin’s energy crisis.”

“We stepped up to support the British economy in the face of two global shocks, but we cannot borrow forever.

Nestlé’s strong collection of brands helped it drive through price hikes of almost 10% in the last quarter, explains Matt Britzman, equity analyst at Hargreaves Lansdown:

“Nestlé’s showing just how important it is to have a strong suite of brands, which have allowed the consumer giant to push through some pretty hefty price hikes with little impact on volumes.

From Purina PetCare to KitKat, Nestlé’s host of strong brands are keeping their appeal despite rising prices and a consumer coming under ever-increasing pressure to cut back spending. Double-digit growth in confectionery and Petcare was impressive. It’s as important now as ever to keep sales moving in the right direction as higher input costs continue to linger.

Nestlé seems to have that under control for now, and it’s always pleasing to see full-year profit guidance remaining intact when you consider the challenges facing both the business and the consumer.

Aldi and Lidl hit new record market shares

Britain’s discount grocery chains, Aldi and Lidl, both hit record market shares over the latest 12-week period at 10.1% and 7.6% respectively, Kantar reports.

Both groups benefited from the pressure on household budgets, Kantar says:

Lidl was the fastest growing grocer with sales increasing by 25.1%, while Aldi is just behind on 25.0%. Consumers are continuing to shop around, visiting at least three major retailers every month on average.

The discounters have been big beneficiaries of this, with Aldi going past a 10% market share for the first time this month.

Poor families miss out on budget ranges at big chains’ smaller shops, says Which?

Low-income families are missing out on the chance to pick up supermarkets’ lowest-priced essentials as fewer than 1% of the leading chains’ smaller stores stock them, according to a study.

The consumer group Which? dispatched mystery shoppers to hunt for a list of about 30 items under the cut-price own-label ranges in Sainsbury’s, Tesco, Asda and Morrisons stores, including apples, beef mince, tinned tomatoes, rice and instant coffee.

On average, the biggest supermarket stores had 87% of the products researchers were looking for, or an equivalent product in the same range.

However, in small Tesco Express, Sainsbury’s Local and Morrisons Daily convenience stores, the budget own-label items on Which?’s list were available less than 1% of the time. Asda does not have a large number of small stores and so it was not included in that part of the study.

Jobs at risk as Ocado plans to shut Hatfield site

Ocado's Customer Fulfilment Centre in Hatfield.
Ocado's Customer Fulfilment Centre in Hatfield. Photograph: Daniel Leal-Olivas/PA

Newsflash: Ocado Retail is planning to shut its warehouse at Hatfield, putting 2,300 jobs at risk.

Ocado Retail, a 50/50 joint venture between Ocado Group and Marks & Spencer, says it is proposing closing the Hatfield customer fulfilment centre [CFC], which is the oldest site in the Ocado network.

Ocado said it did not expect any change to the volume of orders fulfilled due to the stoppage of operations at Hatfield, north of London, and plans to move the order-processing done at Hatfield to other sites.

That will include the new warehouse being built at Luton, where Ocado hopes to redeploy Hatfield staff. It says:

There are currently around 2,300 employees based in Hatfield, and Ocado has now commenced a consultation process with colleagues on these proposals.

The consultation is expected to close in the summer 2023, with Hatfield operations expecting to halt when Luton starts operating.

Explaining the move, Ocado says its new robotic grocery-picking systems are faster than the original system at Hatfield:

The latest generation of robotic CFCs are consistently achieving well over 200 units picked per labour hour within the facility (‘UPH’), compared to UPH of around 150 for our first generation CFC in Hatfield. The newest sites also have much lower energy usage.

Kantar: Too early to call top on grocery inflation

The latest drop in grocery price inflation will be welcome news for shoppers but it’s too early to call the top, says Kantar’s Fraser McKevitt.

McKevitt explains:

We’ve been here before when the rate fell at the end of 2022, only for it to rise again over the first quarter of this year.

We think grocery inflation will come down soon, but that’s because we’ll start to measure it against the high rates seen last year. It’s important to remember, of course, that falling grocery inflation doesn’t mean lower prices, it just means prices aren’t increasing as quickly.

UK grocery inflation slows, but still 17.3%

It’s official: UK grocery price inflation dipped slightly in April.

Data firm Kantar has confirmed that consumers are still paying 17.3% more than this time last year at UK supermarkets, as they told the Today programme this morning.

That’s slightly lower than last month’s 17.5% grocery inflation, but still means that housholds are facing painful price hikes.

The cost of living crisis has spurred demand for own label sales – they rose 13.5% year on year, with the very cheapest value lines soaring by 46%.

Fraser McKevitt, head of retail and consumer insight at Kantar, said:

“The latest drop in grocery price inflation will be welcome news for shoppers but it’s too early to call the top.

“We’ve been here before when the rate fell at the end of 2022, only for it to rise again over the first quarter of this year.

“It’s important to remember, of course, that falling grocery inflation doesn’t mean lower prices, it just means prices aren’t increasing as quickly.”

Easter spending still rose, with 38 million chocolate eggs and treats bought in the run-up to Easter Sunday – five million more than last year – and hot cross bun sales up 5% on last year.

Updated

Nestlé’s petcare division raised its prices by 12.2% in the last quarter, helping to drive a near 16% increase in revenues.

Prices of milk products and icecream were hiked by 11.8%, while ‘prepared dishes and cooking aids’ cost 11.1% more.

Petcare was the largest contributor to organic growth, led by brands such as Purina ONE, Purina Pro Plan and Friskies, followed by confectionery.

Nestle sales Q1 2023

Updated

Introduction: Sharp price hikes drive up Nestlé sales

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

Food giant Nestlé has reignited the debate over greedflation by beating sales forecasts this morning, thanks to price increases.

The Swiss company behind Nespresso pods, KitKat chocolate bars and Maggi noodles says it hiked its prices by 9.8% in the first three months of this year, which it blamed on “significant cost inflation”.

Total reported sales increased by 5.6%, while sales volumes edged down by 0.5% as customers largely swallowed high prices in the shops.

This left Nestlé with organic revenue growth of 9.3%, higher than expected, with sales rising to 23.5bn Swiss francs, beating average estimate of 23.27bn.

Mark Schneider, Nestlé CEO, says “responsible pricing” helped pump up sales growth:

“Nestlé delivered strong organic growth in the first quarter, as our teams worked diligently to protect volume and ensure resilient mix.

Portfolio optimization efforts and responsible pricing helped to offset the ongoing pressures from two years of cost inflation.

UK households, who are facing the worst food price inflation in 45 years, may question how responsible these price increases are. Central bankers, worried that company price rises are driving up inflation, may have concerns too.

But there are hopes this morning that grocery inflation may have peaked.

Kantar, the data research group, is expected to report this morning that the pace of price increases at UK supermarkets slowed this month.

Kantar’s Fraser McKevitt told Radio 4’s Today programme that grocery inflation dropped to 17.3% per year in the last four weeks, down from 17.5% a month ago.

McKevitt calls it a “marginal drop”, and cautions that it’s probably a bit early to say we’ve seen the peak in grocery inflation.

But after 10 months of double-digit grocery price inflation, the UK is starting to lap last year’s price rises, so it’s likely that inflation (which compares prices to a year ago) will come down, he predicted.

But, we won’t be entering an era of falling prices, he adds, even if prices rise less quickly than before…..

The agenda

  • 7am BST: UK public finances for March

  • 8am BST: Kantar grocery market share and inflation data

  • 10am BST: Bank of England deputy governor Ben Broadbent speech: ‘Monetary policy: prices versus quantities’

  • 11am BST: NatWest bank holds AGM

  • 11am BST: CBI industrial trends report

  • 2pm BST: US house price index

  • 3pm BST: US consumer confidence figures

Updated

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