Brexit: Supermarkets set to shrink packets and use cheaper ingredients due to pound weakness, says Bank of England

Sterling plummeted 10% following the EU referendum pushing up the prices of imported ingredients

Consumer groups have previously warned that retailers have been shrinking product sizes to keep prices low or increase margin profits (Alamy)

Supermarkets are planning to reduce packaging sizes and use less expensive ingredients to save money, following UK’s vote to leave the EU.

Sterling plummeted 10 per cent following the EU referendum in June, pushing up the prices of imported ingredients, according to the Bank of England.

The Bank of England has warned shoppers that some food retailers were “re-enginnering” products in an effort to maintain prices at pre-Brexit level to keep their “highly price-sensitive” customers happy.

"Retailers were very cautious about any increases in prices, given that consumers remained highly price sensitive, and so the extent and timing of pass‑through would largely depend on competitors’ actions, particularly in food retail," the Bank of England said in its survey of business conditions.

"Some food retailers were re‑engineering products to maintain existing prices. In non‑food goods, some retailers were starting to increase prices in response to rising material costs, particularly for products sourced in US dollars, but the impact was expected to be seen more fully through 2017," it added.

Consumer groups have previously warned that retailers have been shrinking product sizes to keep prices low or increase margin profits.

Earlier this year, a study by consumer group Which? found that the products on supermarkets shelves are getting smaller but prices are not.

Toilet rolls, chocolate biscuits and orange juice were among the products that have shrunk in size, meaning customers are paying more for less.

“Shrinking products can be a sneaky way of increasing prices. We want manufacturers and supermarkets to be upfront so consumers aren’t misled,” Richard Headland Which? editor said.

The Bank of England’s comments came as its Financial Policy Committee said Britain still faces a “challenging period of uncertainty and adjustment”.

However, it acknowledged that markets have calmed down since the immediate volatility in the wake of the referendum vote.

On Wednesday, the Office for National Statistic concluded that the Brexit vote has had no major impact on the economy.

“It hasn't fallen at the first fence but longer-term effects remain to be seen,” Joe Grice, ONS chief economist, said.

The OECD also revised its UK’s 2016 forecast up from 1.7 per cent to 1.8 per cent. However, it halved its forecast for next year to 1 per cent - easily the largest downgrade for any major advanced economy.

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