Chocolate is getting cheaper in the UK and the burnham bounce!

[00:00:00]There is good news this morning.

[00:00:02]Chocolate is getting cheaper. Now, I appreciate that's not quite the economic equivalent of a moon landing, but you know, chocolate is chocolate, and John Healey will not enter the Treasury history books as the chancellor who restored the affordable milk tray. But cheaper chocolate tells us something important about the British economy.

[00:00:24]Inflation fell to 2.6% in June, down from 2.8% 8% in May. Economists expected 2.7%. So the figure was slightly better than forecast. This was the lowest inflation rate since March 2025. The main reasons were cheaper fuel, slower food price growth, and larger summer discounts on clothing. Chocolate, margarine, and beef were among the products whose prices fell. For Andy Burnham, this was the beginning of what Downing Street will hope becomes the bound the Burnham bounce. He's been prime minister only for a few days. He didn't personally negotiate the price of cocoa beans other than the cost of diesel or arrange uh the summer sales.

[00:01:05]He didn't do any of these things. These figures relate to June before he entered Downing Street. Yet politics is often about timing and expectation.

[00:01:14]Governments inherit economic trouble, but they also inherit good news.

[00:01:20]Bernhammer has arrived just as inflation has fallen. Public borrowing has come in below expectations. VAT is being removed from domestic electricity bills and the 2 bus fair cap is being restored. The impression is one of immediate movement.

[00:01:35]And the first basic economic point is that falling inflation doesn't normally mean falling prices. If inflation drops from 2.8% to 2.6%, prices are still rising overall. They're just rising more slowly. A basket costing £100 last year would cost about £10260 today. Falling inflation is similar to a car reducing speed. The car is still traveling forwards but less rapidly. Chocolate is slightly different because its price appears to have fallen during the month.

[00:02:04]This is a genuine price reduction within one category. Yet the overall inflation figure measures hundreds of products and services. The Office for National Statistics collects around 180,000 prices covering roughly 700 items to construct the consumer prices index.

[00:02:23]Cheaper chocolate therefore matters in two ways. Firstly, it offers a small visible benefit to consumers. People do not experience inflation as an abstract percentage. They experience it at petrol stations, the supermarket checkout, and when electricity bill uh bills arrive.

[00:02:40]Secondly, chocolate tells us about supply, competition, and consumer demand. Chocolate prices rose sharply in recent years after poor cocoa harvests, crop disease, difficult weather, and disruption within producer countries.

[00:02:54]When the cost of the raw product rises, manufacturers face higher production costs. Then they choose between raising prices, reducing packet sizes, or accepting lower profits or simply masquerading as Willy Wonker. When input costs ease, supermarkets compete for customers, and household demand weakens, prices start moving in the other direction. The British Retail Consortium has credited intense supermarket competition for part of the recent moderation in food prices. This is the principle of supply and demand in its most edible form. And when a product becomes scarcer uh that um uh that that that while demand stays strong, its price tends to rise. When supply improves, demand weakens or retailers compete harder, its price tends to fall. The same logic applies to oil. A temporary easing of conflict involving Iran helped reduce crude oil prices during d June. Diesel fell by 10.7 pence per liter between May and June, while petrol fell by 2.1 pence. Lower fuel prices directly reduce the inflation index. They also lower transport costs for businesses moving food and other goods around the country.

[00:04:14]This creates what economists call a transmission effect. Cheaper oil lowers the price of filling a lorry. Cheaper transport reduces pressure on supermarket distribution costs. Lower distribution costs reduce the need for price increases. Unfortunately, transmission also works in reverse.

[00:04:32]Fighting has resumed. Oil prices have risen again and the household energy price cap increased by 13% in July.

[00:04:40]June's inflation figure therefore looks more like a temporary relief than a final victory. The Bank of England's target is 2%. Inflation at 2.6% is closer to target but still too high.

[00:04:53]Services inflation, which includes areas such as restaurants, rents, insurance, and professional services, remained higher at 3.6%. Services inflation often reflects domestic wages and costs, so the bank watches it closely. And this brings me to interest rates. When inflation is persistently high, the bank raises interest rates. Higher rates make mortgages, loans, and business borrowing more expensive. Households then spend less. companies delay investment and demand across the economy weakens.

[00:05:25]Weaker demand reduces the ability of businesses to raise prices. This treatment works but hurts. It resembles cooling a fever by placing the patient in an ice bath. The bank rate currently stands at 3.75% with the next decision due on the 30th of July. Markets expect no immediate change as the bank considers falling inflation, weak economic growth, and the renewed risk from energy from higher energy prices. The second large economic issue is government borrowing. When borrowing, when government spending exceeds tax revenue, the Treasury borrows the difference. It does this mainly by selling government bonds known as guilts. Investors lend money to the government and receive interest in return. Bond yields matter because they represent the cost of government borrowing. When investors fear excessive spending, weak fiscal discipline or persistent inflation, they demand a higher return. Higher guilt yields then raise debt interest costs and often feed through into mortgages and business loans. This explains Burnham's appointment of John Healey as chancellor. I suspect Healey has treasury experience from the Gordon Brown years and is regarded by investors as more cautious than Ed Milliband. His appointment steadied the immediate reaction, although 10-year guilt yields remained above 5% and longerterm borrowing costs reached a two-month high.

[00:06:54]Healey told Treasury officials that fiscal control would be his first duty and described fiscal credibility as the foundation of economic stability.

[00:07:04]um and national security. Those words were chosen for the bond market as much as for civil servants. Yet Healey faces an uncomfortable list of demands.

[00:07:15]Burnham wants more defense spending, more social housing, action on social care, protection for the pension triple lock, higher income tax thresholds, and help with living costs. Each proposal has supporters. Each also costs money.

[00:07:31]Healeely therefore has four options. He might raise taxes, reduce spending elsewhere, borrow more, or secure faster economic growth. In practice, governments usually combine all four.

[00:07:43]Borrowing to fund productive investment is not automatically irresponsible.

[00:07:47]Borrowing for housing, transport, or energy infrastructure might expand the economy's future productive capacity. If investment raises growth and tax revenues, part of the borrowing pays for itself. Borrowing for permanent day-to-day spending is more difficult because the bill returns every year. A temporary program and a permanent entitlement are economically different creatures. The Treasury's task is therefore not merely to ask how much something costs. It must ask what kind of spending it is, how long it lasts, and whether it improves Britain's productive capacity.

[00:08:24]Burnham's early measures are politically shrewd. Removing VAT from electricity bills will save the typical household around £45 a year. The two pound bus fair cap will reduce commuting costs for many passengers. Neither measure transforms family finances, but both are simple, visible, and easily understood.

[00:08:44]They also support the broader message, cheaper energy, cheaper travel, and by happy coincidence, cheaper chocolate.

[00:08:51]And this is the positive side of the burn and bounce. Confidence matters and when households expect conditions to improve, they spend more freely. When businesses see stable demand and credible public policy, they invest and recruit. Economic optimism might therefore help produce some of the growth which governments require. Yet confidence is fragile. A bounce is not the same as a recovery. Burnham has enjoyed a favorable opening. lower inflation, lower than expected borrowing, and markets reassured by Healey's appointment. He now needs a clear budget, firm costings, and a credible distinction between investment and ordinary spending. Cheaper chocolate is welcome, of course. It means households are receiving a small amount of relief after years of relentless price increases. But the true test of the Burman government is whether chocolate remains affordable after the first political sugar rush has worn off.