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Brexit is making chocolate more expensive

The price of cocoa in London rose by 1.5% to a record £2,495 a tonne

Zlata Rodionova

Friday 08 July 2016 09:51 BST

raders said the jump in cocoa, the key ingredient for chocolate, was a direct impact of the volatile UK currency (AFP/Getty)

The price of chocolate is likely to rise after the pound slid against other currencies in the aftermath of the EU referendum.

The price of cocoa in London rose by 1.5 per cent to a record £2,495 a tonne on Wednesday, its highest in nearly forty years, as the pound fell to a new 31-year low.

Cocoa continued to trade above £2,500 on Thursday morning.

The last time cocoa traded near this levels was July 2010, when falling supplies from Africa coincided with rising emerging-market demand.

Traders said the jump in cocoa, the key ingredient for chocolate, was a direct impact of the volatile UK currency.

Cocoa prices are also influenced by factors such as extreme weather and political instability in producing countries.

A weaker pound means London cocoa positions are less expensive for holders of other currencies.

The coca extract in the nutritional supplement which includes the compound flavanols is said to improve blood circulation (Rex Features)

“If the pound continues to drop from concerns of an exit, traders would continue to buy puts in the currency and calls in the cocoa,” Peter Mooses, senior market strategist at brokers RJO futures in Chicago, told the FT.

The pound fell as low as $1.28 against the dollar in overnight trading on Wednesday after warnings about the financial stability of the UK after Brexit spooked investors.

Some analysts have said the pound still has further to slide.

On Friday, the pound was up 0.2 per cent at $1.2933

The weaker pound could signal the end of cheaper groceries for UK consumers, according to new figures by Kantar World Panel.

“Any long-term change in exchange rates may threaten the current period of cheaper groceries,” said Fraser McKevitt, head of retail and consumer insight at Kantar Worldpanel.

Separately, Meurig Raymong, the president of the National Farmers Union, warned that the UK’s dependence on imports combined with weakened pound would mean the country could expect to see the price of food go up.

6 ways Britain leaving the EU will affect you

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1/66 ways Britain leaving the EU will affect you

6 ways Britain leaving the EU will affect you

More expensive foreign holidays

The first practical effect of a vote to Leave is that the pound will be worth less abroad, meaning foreign holidays will cost us more

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6 ways Britain leaving the EU will affect you

No immediate change in immigration status

The Prime Minister will have to address other immediate concerns. He is likely to reassure nationals of other EU countries living in the UK that their status is unchanged. That is what the Leave campaign has said, so, even after the Brexit negotiations are complete, those who are already in the UK would be allowed to stay

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6 ways Britain leaving the EU will affect you

Higher inflation

A lower pound means that imports would become more expensive. This is likely to mean the return of inflation – a phenomenon with which many of us are unfamiliar because prices have been stable for so long, rising at no more than about 2 per cent a year. The effect may probably not be particularly noticeable in the first few months. At first price rises would be confined to imported goods – food and clothes being the most obvious – but inflation has a tendency to spread and to gain its own momentum

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6 ways Britain leaving the EU will affect you

Interest rates might rise

The trouble with inflation is that the Bank of England has a legal obligation to keep it as close to 2 per cent a year as possible. If a fall in the pound threatens to push prices up faster than this, the Bank will raise interest rates. This acts against inflation in three ways. First, it makes the pound more attractive, because deposits in pounds will earn higher interest. Second, it reduces demand by putting up the cost of borrowing, and especially by taking larger mortgage payments out of the economy. Third, it makes it more expensive for businesses to borrow to expand output

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6 ways Britain leaving the EU will affect you

Did somebody say recession?

Mr Carney, the Treasury and a range of international economists have warned about this. Many Leave voters appear not to have believed them, or to think that they are exaggerating small, long-term effects. But there is no doubt that the Leave vote is a negative shock to the economy. This is because it changes expectations about the economy’s future performance. Even though Britain is not actually be leaving the EU for at least two years, companies and investors will start to move money out of Britain, or to scale back plans for expansion, because they are less confident about what would happen after 2018

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6 ways Britain leaving the EU will affect you

And we wouldn’t even get our money back

All this will be happening while the Prime Minister, whoever he or she is, is negotiating the terms of our future access to the EU single market. In the meantime, our trade with the EU would be unaffected, except that companies elsewhere in the EU may be less interested in buying from us or selling to us, expecting tariff barriers to go up in two years’ time. Whoever the Chancellor is, he or she may feel the need to bring in a new Budget

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He added that the that EU subsidies for British farmers amount to £2.4 billion - £3 billion a year, depending on exchange rates, and help keep the sector afloat.

The Bank of England has said in its twice-yearly stability report that the financial stability of the UK has already been affected by Brexit, helping to push the pound lower.

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