The Effects of Brexit and Covid-19 on Food Inflation in the United Kingdom

Abstract

This paper has two purposes: Firstly, it addresses the observed effects of both Brexit and the Covid-19 pandemic on food inflation in the United Kingdom (UK). Secondly, it uses statistics and data from different sources to explore the effect of the exchange rate, the imports costs and the real wages, and to show how those events have contributed to increased price volatility that the pressures on supply and demand can explain. The Covid-19 has created new shortages and additional costs for consumers and producers. In addition, the pandemic can be the starting point of a change in consumers' and producers’ behaviours as it has put forward new challenges in terms of different modes of consumption and production as well as new constraints. The situation is still uncertain and unstable where the ultimate impacts of both Brexit and Covid-19 are yet to be concluded. However, there is a consensus that a spell of inflation will persist, at least in the short term. The combined effects of shortage and disruption in both supply and demand have induced an increase in food prices. The nature of such effects can be compensated by different policy measures such as the stimulus package that aimed to support both producers and consumers. However, the efficiency of these instruments needs to be assessed in order to see if inflation will lead to high deficits and possible risks linked to the downgrading of the UK’s credit rating. In this case, the risks of currency depreciation and of inflation can be seriously harmful to the British economy.