Following several months of high inflation, the Food and Drink Federation (FDF) has upgraded its inflation forecast for the sector, projecting that it could reach 5.7% by December, compared to its previous forecast of 4.8%.
Between July 2020 and July 2025, food and drink prices rose 37%. The trade body noted that this is significantly higher than the overall UK inflation rate, at 28%. It highlighted that everyday staples have seen some of the steepest increases. For example, the cost of four pints of milk has risen by 46% over the last five years, while sugar and cheese prices are up 56% and 31% respectively.
Initially, this trend was driven by surging production costs. Over the first three years of this decade, agricultural commodity prices rose by 51%, while UK gas prices quadrupled. However, FDF noted that despite most of these costs stabilising in 2024, food and drink inflation has persisted at well above the average rate through 2025. The rate of rising food prices in the UK has also outpaced other European countries. By July, UK food inflation stood at 4.9%, far higher than in France (1.8%), Germany (2.7%), or Spain (2.8%).
The trade body stated that this shows that a key driver of food inflation in the UK is the cost of government regulation and policy decisions. This includes changes to employer National Insurance Contributions, costing the food and drink sector £410m a year, and £1.1bn for the new packaging tax, Extended Producer Responsibility (EPR).
“Food and drink inflation has been climbing steadily all year, with no sign of easing,” said Dr Liliana Danila, Lead Economist at FDF.
“Looking at the longer-term picture, today’s prices are steeper than anything in recent decades. The five-year average is running at more than double the rate seen between 1990-2010.
“Inflationary spikes between 2020 and 2023 were driven by geopolitical shocks, which created supply chain disruptions and sharp rises in energy and raw ingredients. With most of these costs now stabilised, this new inflation surge is fuelled by the financial impact of domestic policies, now trickling down to supermarket shelves.”
FDF noted that over recent years, food manufacturers have tried to absorb rising costs. Average production costs increased 6.3% last year, well above the rate of inflation. However, having faced such a long period of cost pressures, price rises have eventually made their way to supermarket shelves.
Karen Betts, Chief Executive at FDF, added: “UK food price inflation is running persistently high. It’s an outlier against comparable European economies, and it’s persisting in the absence of energy or commodity shocks. The costs are such that companies can no longer absorb them and are having to pass at least some of them onto consumers.
“As this Autumn’s Budget looms, it’s critical that the government does not add further to the already high costs of regulation in our sector. We’ve been hit by rising taxes, employment costs, and a new packaging tax. We’re calling on the government to help us turn this tide by partnering with industry to attract investment, accelerate productivity growth, boost skills, and grow exports across our sector. This will help counter inflation and secure a more resilient future for UK food and drink manufacturing.”
NAM Implications:
- 40%+ five-year price rises of foodstuffs is fuelling consumers’ perception that actual inflation “is higher than they say”.
- Thereby dampening demand…
- Hopefully, the government will not be too distracted by ministerial sackings and resignations…
- …to deafen them to the warnings from all sides…
- …not to further penalise retail in the Autumn Budget.
