It’s now being referred to as Marmitegate by BBC news, but the short-lived dispute between Tesco and Unilever is no laughing matter. Furthermore, this may only serve as a precursor for similar future disputes. But far from having the assumed negative impact on the average consumer, this may in fact mark a turning point for the UK economy.

As the Great British Pound falls to its lowest ever level against the US Dollar, UK based supply companies are beginning to feel a squeeze on their margins. So much so that the owner of (probably) your favourite brand Unilever reportedly tried to enforce a 10% increase on their prices, leading to Tesco subsequently removing Unilever products from their shelves, albeit for 24 hours. An amusing scenario, this little episode may serve as the first of many as reluctant retailers embroil themselves in price wars, not amongst eachother, but with suppliers.

You might assume that this is an attempt to remove just a little bit more of that hard-earned cash inside the average consumer’s wallet in order for a UK 100 brand to ease their tough margins. And you’d be correct. Tough times for suppliers mean that in order to stay profitable, prices will have to increase. Yet a price raise for your favourite household products may in fact be the first domino to fall in the procession that leads to more money in the UK economy and, as a result, more money in your pocket.

An increase in prices, better known as inflation, is hard to come by these days. Fantastic news if you intend on having the family round for Christmas dinner this year, but not good for the UK economy. The low interest rate environment we now consider the new norm has come about in an attempt to boost inflation, normally a sign that high growth will follow. Unfortunately, however, we now find ourselves in a low growth, low interest rate predicament. But, thanks to economics, it’s swings and roundabouts; the short-term impact of a raising of the prices of a well-known branded ice cream someone normally enjoys on a night in for one may actually have a positive effect on the economy.

Increased prices equal higher consumer spending; raised consumer spending results in a boost to demand in the economy; a boost to the economy and now you’re looking at the Bank of England raising interest rates to combat higher inflation and the Pound begins to strengthen against the dollar once more. Demand for our beloved currency increases, more money flows into the economy and consumers are once again enjoying the good life. Economics 101.

So far from ‘Marmitegate’ being the beginning of a tough period for the British consumer as suppliers and retailers begin to fight amongst themselves over the price at which they sell their wares, perhaps this actually signals the beginning of a much brighter period for the UK economy. In the meantime, I’ll be enjoying a cup of Unilever’s own PG Tips and making sure that you’re kept informed of the latest market movements.

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Henry Croft, Research Analyst, 14 Oct