UK food businesses face tough financial challenges with multiple cost pressures in 2025, with the cost of essential food items likely to rise, with a predicted increase of up to 4.9% next year, according to the Institute of Grocery Distribution (IGD).
IGD’s latest Viewpoint Special Report, Hungry for Growth, highlights food inflation as one of the most significant challenges for UK households. However, it also places the increase in food prices within a wider context of overall industry pressures.
While food inflation is set to outpace core inflation in 2025, businesses across various sectors, including food, are facing rising operating costs, primarily driven by regulatory changes, employment costs, and global trade factors.
IGD’s forecast for food inflation in 2025 is based on a full overview of all the cost pressures on food businesses for the next 12 months.
While energy and commodity prices will remain stable, albeit a little higher in 2025, there will be significantly increased employment and regulatory costs for food businesses in the coming year, which will mean that food inflation could hit anywhere between 2.4% and 4.9%.
IGD estimates that the biggest costs will hit food businesses in three phases during 2025, as follows:
- April: Rising costs of employing staff, due to increases in National Insurance and the National Living Wage;
- July: Rising costs of food imports, due to implementation of the Windsor Framework agreement with the EU; and
- October: First payments are due to fall on extended producer responsibility (EPR), increasing costs on packaging.
IGD estimates that the food sector will only be able to absorb between 20% and 40% of these costs, meaning that the remainder will be passed on to the consumer.
Food inflation is likely to continue to exceed inflation in other items – not just in 2025, but also in 2026.
James Walton, chief economist at IGD, stated, “For the food sector, the increased financial burdens are becoming harder to absorb, particularly for smaller players in the sector.
“The cumulative effect of multiple changes landing within a short period of time will drive significant cost into all food businesses across the UK. However, the overall resilience of the food industry remains an area of hope, as it navigates these challenges.”
To download the report, click here.
This article was written in partnership with IGD.
