What has the Morrison takeover of Safeway got to do with the rate of interest? You could be forgiven for assuming “very little,” but actually it looks as if you would be wrong. Verdict research has identified what it calls the “Safeway” effect, and argues that the takeover could be a key factor in keeping prices down in the year ahead.
This morning Verdict published the results of a survey which predicts grocery prices will fall 0.6% next year, meaning 2006 will be the third successive year of falling grocery prices. In total 2006 will see £1.7bn knocked off the UK’s grocery bill, which will bring total saving since 2003 to £3bn.
And in its report, Verdict identified the “Safeway” effect as the more expensive (and upmarket) Safeway stores are integrated into the cheaper Morrison business. The last four Safeway stores are in fact disappearing under the Morrison name today. The Morrison Safeway merger hasn’t just hit prices in former Safeway stores. The Verdict report said “Though Morrison’s conversion program is essentially complete, consumer lag in switching means there will be a far larger proportion of customers up for grabs than usual. We therefore expect competition to intensify in the first half of 2006 and anticipate further price reductions.”
Tesco itself has predicted that its prices will be 2% lower next year, and Sainsbury says average prices in its stores will be 1.4% down.
It seems that as long at this fierce supermarket competition continues to bring down prices, CPI inflation too will stay largely in check, and any effect of higher fuel costs are likely to be counterbalanced by this, enabling the Bank of England to keep rates low, maybe even reduce them.
Talking of interest rates, the Bank of England revealed its minutes from its latest meeting yesterday. The vote to keep rates on hold earlier this month was unanimous. And MPC member David Walton, speaking on BBC Radio Ulster talked about a “steady course for interest rates at the moment.”
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