Analysis by IGD suggests that food prices could rise by nearly 5% in 2025, driven partly by the measures announced in October’s Budget, including increases in the living wage and employers’ national insurance contributions.
IGD’s latest Viewpoint Special report – Hungry for Growth – highlights that food inflation is one of the most significant challenges for households in the UK, with grocery bills having climbed 40% since 2020.
While energy and commodity prices are expected to remain relatively stable in 2025, food businesses face significantly increased employment and regulatory costs, which could result in food inflation hitting between 2.4% and 4.9%.
IGD highlights that the most significant cost hikes will hit businesses in three phases during 2025:
- April: rising costs to employment of staff due to increases in national insurance and the national living wage
- July: rising costs of food imports due to the implementation of the Windsor Agreement framework with the EU
- October: first payments are due to fall on Extended Producer Responsibility (EPR), increasing costs on packaging
The report estimates that the food sector will only be able to absorb between 20% and 40% of these costs, meaning the remainder will need to be passed onto the consumer.
Food inflation is likely to continue to exceed inflation in other items, not just in 2025 but also in 2026.
IGD Chief Economist James Walton said: “We do not see food prices going down in the foreseeable future. The rising cost of living, combined with increased employment and regulatory costs, will keep inflation elevated.
“Consumers will undoubtedly look for ways to save money, but the impact of these cost pressures will be felt across the economy.
“For the food sector, the increased financial burdens are becoming harder to absorb, particularly for smaller players in the sector. The cumulative impact of multiple changes landing within a short period of time will drive significant cost into all food businesses across the UK.”
NAM Implications:
- Good that the IGD are taking a view on the shelf price impact.
- Driven in part by the Budget announcements.
- Worth taking the 5% at face value…
- …and exploring the impact on your consumers…
- …given current price sensitivities.
- Then adjust for the IGD phases of April, July and October as appropriate…
