Tesco expects higher prices in 'worst case' scenario of a no-deal Brexit

Saleha Riaz
Tesco's chairman said some of the tariffs on imported dairy products like French cheese can be as high as 40%. Photo: Getty Images
Tesco's chairman said some of the tariffs on imported dairy products like French cheese can be as high as 40%. Photo: Getty Images

Tesco’s (TSCO.L) chairman said the “worst case” scenario of a no-deal Brexit will mean short-term disruptions to supplies and higher prices for consumers as a result of “substantial tariffs.”

Speaking to Bloomberg, John Allan said the supermarket is stockpiling long-life products in warehouses and with suppliers to minimise the risk of disruptions, as he suspects Tesco’s competitors are doing as well.

He said a big challenge will be supplies that travel through the Port of Dover, Britain's main link to the continent, and the company has been diverting shipments to other ports.

Allan expects a shortage particularly of short-life fresh foods, although for a limited period of time, and expects the situation to be “back to normal” within a month or two.

He said if there is no-deal “there will be tariffs and those tariffs can be quite substantial on some food items, inevitably leading to higher prices. That’s unavoidable.”

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Allan expects British consumers to be faced with “low to mid single digits inflation,” roughly 3% to 5%, because of tariffs, but added this depends on what they buy. He said some of the tariffs on imported dairy products like French cheese can be as high as 40%, but those buying locally produced goods won’t feel much of a difference.

In the event of no-deal, Britain would lose its current right to tariff- and quota-free trade from 1 January. Exporters in certain sectors would face new taxes on their sales to EU countries, while Britain could place similar tariffs on certain imports.

Tesco shares were up roughly 1.2% Wednesday afternoon. Chart: Yahoo Finance UK
Tesco shares were up roughly 1.2% Wednesday afternoon. Chart: Yahoo Finance UK

Earlier this month, Tesco CEO Ken Murphy had said that “We will maintain a very a sharp focus on price regardless of Brexit. We are committed to providing value regardless of the circumstances. Particularly if we head into a recession — if times get tough — we will be even more focused on value. That won’t change, regardless of what happens with Brexit.

Tesco announced earlier this month it will repay the government £585m ($787m) it saved under a business rate holiday for retailers during the pandemic.

On this, Allan said the company had a “moral obligation” to repay the money as it was the right thing to do, even though “it will dent out profits for the year.”

Speaking on the increase in online shopping during the coronavirus pandemic, he said Tesco has more than doubled the number of weekly home deliveries it does from 700,000 to 1.5 milion.

He doesn’t expect this figure to sustain in a post-pandemic world, but does expect a substantial uplift. For some, he said, it might lead to a permanent change of habit “and that’s something the industry has to adjust to.”

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