Prestige Purchasing’s chairman, David Read, suggests that the management of costs will reach new levels of difficulty in the year ahead.

Managing margins has been a continuing battle for operators for several years now. The first round of post-referendum food inflation started to hit in the Spring of 2017, eased a little in early 2018, before bouncing back later in the year (and early 2019) with a high of just under 10% in February. This summer has seen inflation falling but prices still going up, just a little more slowly than last year. The battleground has shifted from food (which is now flattening out), to soft drinks where the boom in alcohol replacement drinks has triggered double digit inflation.

Elsewhere in the wider economy pressures have also been building. Wages rose at the fastest pace for more than a decade as the UK jobs market continued to defy the broader slowdown in the economy. Workers’ pay before bonuses in the three months to May rose by an annual 3.6%, the biggest rise since 2008. The price of oil, still a critical influence on total costs rose sharply from $55 in January to a high of $71 in April, before a recent dip to $61.

In recent weeks Boris Johnson was elected by the Tory Party to replace Theresa May. He has now formed his own Cabinet and has set about taking the UK out of the EU by 31 October “come what may”. As a result, the prospect of a ‘no-deal’ Brexit has increased, as the government seeks to strengthen its hand in negotiations with the EU. Time looks extremely tight to hit the 31/10 deadline, and parliamentary opposition to a no-deal exit is considerable.

Since the change of leadership, the pound has continued to soften, particularly following the result of the Brecon and Radnorshire by-election result that saw the government’s parliamentary majority cut to just one after the seat was taken off the Conservatives by the Liberal Democrats.

The prospect of a snap General Election before the end of 2019 is therefore high, and the political uncertainty posed by another vote is likely to keep Sterling on the back-foot for the foreseeable future. The continuing weakening of the currency, though good for exports, will fuel food and drink inflation in the early part of 2020, even if a deal (or a further delay) occurs. Each 1% fall in the value of sterling puts about a half of one per cent on to total FPI food inflation. It does not take much imagination to see that the Brexit impact upon Sterling, particularly in the event of a no-deal, could have a much more damaging impact upon the cost of imported food than the more frequently mentioned tariffs that might be introduced if we trade under WTO rules with the EU.

This pessimism was underlined by Bank of England Governor, Mark Carney who stated on 1 August that Britain crashing out would cause an “instantaneous shock” to the economy that would be tough for the central bank to respond to. He warned the pound would be sold off sharply, inflation would rise, while GDP growth would slow further.

Last week, the Chancellor Sajid Javid announced £1.1bn to prepare critical areas for Brexit and said a further £1bn was available “to enhance operational preparedness this year if needed”. But both the Road Haulage Association (RHA) and Freight Transport Association (FTA) have responded by stating that the spending will be too little and too late to avoid large scale supply chain pain.

The damage to our own farming sector is as yet uncertain too. For example, The Times reports that government officials have told farmers that millions of British lambs may have to be slaughtered and then buried or burnt, rather than eaten, in the event of a no-deal Brexit. This is because UK lamb may be banned from sale to the EU from 31 October under meat hygiene rules applied to non-EU countries. If exports can continue, they would face tariffs of 45%. Nearly half the 20m lambs born annually in Britain are sold to the EU. The fish and shellfish sector is similarly exposed, but with a far shorter time lag on its supply chains.

In fairness this sudden over-supply may bring welcome price relief in some categories for a short period of time, but it is likely that some products in imported categories will be in short supply too, so the overall impact cannot yet be forecasted, particularly as government intervention on tariffs and farming support has not yet been confirmed.

On restaurant selling price, operators will have some relief with overall inflation rising again, but the Bank of England said this week that business investment has been stalling, and that with trade tensions and slowing demand in the global economy Britain has a 33% probability of falling into recession by the end of the first quarter of 2020 even if a Brexit deal is reached. So, there may be little headroom to inflate price to manage margin pressure.

What seems without question is that inflation will rise again next year, and that a disorderly Brexit on 31 October will create major issues in foodservice supply chains – in both product availability and price. Our businesses are, once again, largely in the hands of our politicians when it comes to the level of impact that will emerge.