Market News

BY Irina Anghel and Ellen Milligan, Bloomberg News

, Source: ITC, Allianz Research

(Bloomberg) -- Brexit border controls on certain foods imported to the UK from the European Union may push up inflation by 0.2 percentage points, according to a report published by Allianz Trade.

EU food imports such as fish, salami or cheese coming into the UK will be susceptible to fees of up to £145 ($182) starting April 30, more than four years after Brexit. 

Allianz said these border controls will impact £21 billion worth of agricultural imports, or about 3% of all UK imports. The fees may push up import costs by £2 billion, leading to a potential 0.4% loss of consumer spending.

New border arrangements are due to come into effect on Thursday. The overall inflationary pressures will be mitigated by the UK’s decision to suspend tariffs on goods not covered by Free Trade Agreements, such as cars, metals or mineral fuels. 

Allianz estimated the suspension would reduce the CPI rate by 0.6 percentage points. When taking into account the border checks impact, the net effect on CPI is minus 0.4 percentage points.

A government spokesperson said they didn’t recognize Allianz’s figures and that border checks will be “fundamental to protecting the UK’s food supply chain, farmers and natural environment against costly diseases reaching our shores.”

“These checks will have a minimal impact on food prices and consumers, while saving traders and businesses around £520 million each year compared to the model originally proposed,” they said.

Allianz expects UK households to feel the squeeze at the supermarket. As exporters are set to pass on some of these higher costs to consumers, this would make food more expensive just as the cost-of-living crisis is cooling down. 

“A low income household will pay 40% of its income on food and utilities, so from a social perspective, border controls will bring additional upside pressures,” said Ana Boata, head of economic research at Allianz Trade. “Because of the increase in food prices, people bought much less food in 2022 and 2023, and that might happen to some of these goods as well.”

Allianz estimated the border controls will increase inflation by 0.2 percentage points. The impact might felt over a couple of months or it might become long lasting, according to Boata. Dairy, meat and fish products will be the products whose prices will be most affected by the border checks. Over 80% of meat consumed in the UK comes from the EU, while that number is 95% when it comes to dairy.

The government’s own modeling suggests the new checks won’t have a significant impact on food and drink costs, predicting a 0.2% increase over three years.

(Updates with government comment)