Family food bills soar by 7% as inflation pressure grows

Food prices have jumped by an average of seven per cent in a year, the latest figures show today, in a further blow to households struggling to deal with the soaring cost of living.

The increase will fuel fears that inflation will rise ever higher. The price of fresh food such as meat have risen by 8.4 per cent while staples such as pasta, rice, flour and cereals have climbed 5.1 per cent.

The increases came despite a price war in supermarkets desperate to attract customers feeling the pinch from higher mortgage costs and rising fuel bills.

Gordon Brown claimed today that an agreement on international tariffs and subsidies could slash British families' food bills by £200 a year - but there was no sign of agreement at the G8 summit in Japan.

The June figures for food prices from the British Retail Consortium were announced amid growing fears that the economy is sliding towards recession with output slowing, house prices falling and unemployment rising.

It highlights the dilemma facing the Bank of England which is under pressure on one side to cut rates to boost economic growth, but on the other to raise rates to bring inflation back under control.

Economists expect it to leave rates unchanged at five per cent at the end of its meeting tomorrow.

Howard Archer, chief UK economist at Global Insight, said: "The market jump in shop prices reinforces the belief that the Bank will keep interest rates unchanged, even though the economic downturn is deepening and recession is becoming a very real danger.

"Indeed, the Bank remains trapped between the rock of rising inflation and the hard place of markedly slowing economic activity. However, given current inflation levels and risks, the Bank of England may well be reluctant to cut interest rates until 2009 unless the economy really falls off a cliff."

The British Retail Consortium said the soaring price of food was partly offset-by a rise of just 0.2 per cent in the price of non-food goods last month. Furniture prices rose 3.3 per cent but clothing and footwear fell 2.2 per cent.

With a growing proportion of money spent by consumers going on food, it could push inflation further above the two per cent target set by the Government. It is currently running at 3.3 per cent but is likely to rise above four per cent or even 4.5 per cent in the coming months. As well as rising food prices, it is being driven by the increased cost of oil. Mike Watkins, senior manager at Nielsen which wrote the report with the British Retail Consortium, said: "In recent weeks we've seen more cost price inflation in fresh and chilled foods as well as in some staple categories and this is adding to the cost of the weekly shopping basket.

"As a result we're seeing further price cuts by the major supermarkets to stimulate demand at a time when many households are under increased cost pressures from higher fuel and utility bills." Speaking in the Japanese resort of Toyako during the G8 summit, the Prime Minister said that reducing agricultural tariffs and subsidies would help cut prices in the West while aiding the poorest nations on the planet.

Mr Brown warned that the world was "one minute to midnight" in the race to find a breakthrough on the stalled trade talks at a summit in Geneva later this month.