With food prices still surging, will anyone care about UK growth?

Jeremy Hunt must have grinned like a Cheshire cat at the latest IMF update.

His response, courtesy of a Treasury press release, was as quick as I’ve seen from a government department in some time: “Today’s IMF report shows a big upgrade to the UK’s growth forecast and credits our action to restore stability and tame inflation.

“It praises our childcare reforms, the Windsor Framework and business investment incentives. If we stick to the plan, the IMF confirm our long-term growth prospects are stronger than in Germany, France and Italy... but the job is not done yet.”

Look everyone, I just got an A! From the IMF!

Call me an old cynic but the chancellor’s real grade is closer to C+. For a start, the IMF forecasts were not the only piece of economic news around.

Kantar’s regular update on the grocery sector, which includes a measure of food price inflation, was also released.

It showed food price inflation running at 17.2 per cent. That represents the second monthly fall in a row after the 17.5 per cent high recorded in March. And any improvement is to be welcomed. But it is still the third highest number Kantar has recorded since 2008.

It should also be remembered that the (small) fall is just a decline in the rate of increase. Prices are still rising rapidly, just a teensy bit less quickly than they were.

It is notable that the IMF also made reference to the significant slowdown the UK economy has suffered since last year and the fact that it continues to endure a “stubbornly high” rate of inflation.

Those skyrocketing food prices are making a big contribution to that. The worst may (just about) be over. The supermarkets have been making a big fuss about cutting certain staples and they’re feeling a degree of pressure. But I wouldn’t want to call the high point just yet: food prices are ever volatile and forecasting them is something of a mug’s game.

As for the overall inflation figure of 10.1 per cent, the IMF is right to highlight it as a cause for concern. UK prices are rising at a faster rate than many of our European competitors and the US, while the scars from Russia’s invasion of Ukraine and Covid are still livid.

Also less happily for Hunt, he had to borrow £25.6bn in April, higher than the Office for Budget Responsibility’s forecast of £22.4bn and £11.9bn more than a year earlier.

High inflation makes index-linked debt a lot more expensive to manage. It further forced the chancellor to upgrade benefits in line with the September Consumer Prices Index, which added to the burden. This is very necessary; Britain’s poor could be forgiven for responding to the IMF’s forecasts with bitter laughter. With food taking up a significantly higher chunk of their budgets than those higher up the income scale, their benefit increases failed to cover the real rate of inflation they’ve had to handle.

Hunt has expressed hope that Britain’s debt burden will start to fall as a share of national income later this decade but he’s taking a lot on trust there.

Growth will help, but here’s another factor in that C+ grade: it is still expected to be slow. A 1 per cent improvement in 2024 followed by 2 per cent in each of the following two years isn’t anything to write home about.