Chancellor Jeremy Hunt is to scrutinise profits in the food industry supply chain as part of a series of steps agreed with UK regulators to try to help households and squeeze high inflation.
Much of the “action plan” agreed by Hunt with watchdogs on Wednesday covers work that was already under way to protect consumers, although the chancellor said the regulators had agreed to “work at pace”.
But the Treasury announced Bank of England governor Andrew Bailey was carrying out work to address “high food inflation”, including looking at profit margins for companies in the supply chain.
There have been growing expectations at Westminster that Hunt might take action to contain food inflation, which stood at 14.6 per cent in June, according to the British Retail Consortium, a trade body.
But the government has ruled out imposing price caps and one government official said ministers were not considering a “margin cap” on food companies.
The Treasury said the BoE’s role would be about monitoring what was driving food prices, and working with the Competition and Markets Authority, which has powers to tackle any evidence of profiteering.
The BoE said it would be holding meetings with businesses in the sector and draw on CMA data, with analysis included in the central bank’s August monetary policy report.
The BoE does not believe so-called “greedflation” has played any significant role in the surge in food prices.
Several members of the BoE Monetary Policy Committee have said it might simply take time for lower producer prices to feed through to the retail prices paid by consumers.
Bailey told a central banking conference on Wednesday that one reason retail prices for food did not yet reflect falls in global prices for raw materials was that manufacturers were locked into long-term contracts.
Hunt’s “action plan” to tackle high prices was agreed with five leading regulators — the CMA, the Financial Conduct Authority, plus the telecoms, energy and water watchdogs — after talks at 11 Downing Street.
Areas targeted by regulators for action include the interest rates paid by banks to savers, as well as fuel prices and grocery bills.
Other issues discussed during Hunt’s one-hour meeting with the watchdogs were support for households struggling to pay water bills, broadband and mobile prices, and companies’ energy bills.
The FCA said it would publish a report by the end of July on whether savers are fully benefiting from rises in interest rates.
“We will require the largest banks and building societies to explain the pace and extent of their pass through of interest rates, and how they are proactively supporting customers to switch to high interest rate products that might be suitable,” said the financial regulator.
Labour has accused Hunt of not doing enough to help consumers, but the chancellor said: “I’m pleased we’ve secured agreement with the regulators to act urgently in areas where consumers need most support to ensure they are treated fairly.”
Hunt and Rishi Sunak, prime minister, have been under mounting pressure to be seen to be taking action to tackle the cost of living crisis, but they are heavily constrained by economics and politics.
Hunt’s allies talk of “siren voices from across the political spectrum” calling for more government support for households. Conservative, Labour and Liberal Democrat MPs have called for help for struggling mortgage holders.
The chancellor has rejected those demands as likely to fuel inflation. The government also ruled out a price cap on basic food or other price controls: a policy from which Tories recoil on economic and political grounds.
Hunt has instead decided to show he is responding to the crisis by leaning on regulators and companies to help hard-pressed consumers.
Lord Andrew Tyrie, former CMA chair, was sceptical about whether calling in the regulators would have much effect.
“It might make a difference at the margins, by a small amount,” he said. “But the problem of inflation is macroeconomic primarily. Interest rates were kept too low for too long.”
Hunt was clear that he does not want to give regulators new powers, nor does he want to be seen to be telling them how to do their job.
Instead the chancellor has tried to apply pressure on regulators to explain what is happening in their markets, speed up existing work on competition issues and to provide them with what his allies call “political cover”.