Asda boss criticises Sunak’s ‘clumsy’ plan to cap food prices

The chairman of Asda has hit out at “clumsy” plans by ministers to impose price caps on supermarkets amid fears that soaring grocery inflation is becoming entrenched.

Lord Rose, who was also previously chairman of Marks & Spencer and Ocado, warned that the Government needed to be careful of “unintended consequences” that could arise from intervening in food pricing.

He said: “I’ve been involved in retail for 50 years and there have been all sorts of schemes by all sorts of governments over what they think we should be doing to control the market. You can’t interfere in the markets, the markets will control themselves.”

It came as the Competition and Markets Authority (CMA) said it will assess how suppliers and supermarkets are making decisions on prices as part of a wider investigation into the sector.

In an open letter to supermarkets, the CMA said it will also look at whether a lack of suppliers for certain grocery items is leading to higher prices and if there is evidence of similar trends in other countries.

So far, the CMA said it had not seen any evidence of specific competition problems.

City analysts also sounded the alarm on entrenched UK inflation on Tuesday, warning that the Bank of England faces keeping interest rates higher for longer than other advanced economies because it has failed to get a grip on price rises.

The Telegraph reported this week that the Prime Minister is drawing up proposals to introduce retail price caps on basic food items such as bread and milk to help tackle the rising cost of living.

Food inflation hit 19pc in April, according to the Office for National Statistics (ONS), the highest level in more than 45 years.

Lord Rose said Asda’s supermarkets had kept prices for clothing, food and electronics down in real terms at “unprecedented” levels and insisted it was doing a “very good job for consumers”.

He made the comments as Asda said it had reached a £2.3bn deal to buy most of the UK and Irish operations of EG Group, the forecourt operator. Both businesses are owned by the Issa brothers, Mohsin and Zuber.

Lord Rose, who also chaired the official pro-EU Remain campaign which later descended into chaos, added: “If the Government wants to start doing a relatively clumsy thing then they need to be careful about the unintended consequences... Let the shopkeepers do what they do well – shopkeep.”

He said Rishi Sunak’s plans for a price cap were “rather backward looking” and instead supermarkets should be owed “a debt of gratitude” for working to keep prices as low as possible.

The British Retail Consortium, which represents all the major supermarkets, said the proposals “will not make a jot of difference to prices”.

Official data on Tuesday suggested company profits are not driving up prices, in evidence that so-called corporate “greedflation” is not to blame for soaring consumer costs.

The ONS said the profitability of UK private companies remained stable at 9.8pc in the final three months of last year. The rate is also marginally below the pre-pandemic average.

However, the latest data is backward-looking and Bank Governor Andrew Bailey has suggested that high supermarket prices have recently been driven by food producers “rebuilding” their profits.

Analysts at the Bank of America warned the UK “has an entrenched inflation problem” that can only be addressed through a prolonged downturn or by keeping interest rates “higher for longer than other developed economies”.

Inflation stood at 8.7pc in April. This is far higher than the Bank of England’s 2pc target and the joint highest rate of inflation among the G7, alongside Italy.

In a note to clients, the Bank of America highlighted that because most people fix their mortgage, swathes of borrowers were somewhat shielded from the immediate pain of rate hikes, which would exert a smaller drag on consumer spending.

Meanwhile, analysts at Citi suggested Mr Sunak may start offering mortgage subsidies to struggling homeowners as he fights for re-election, while Goldman Sachs warned that inflation was unlikely to return to the Bank’s 2pc target until the end of 2025.

Ahead of next year’s general election, Citi said voters were likely to hold the Conservative Party “at least partly responsible” for the surge in prices following Liz Truss’s ill-fated mini-Budget last autumn.