The cost of food items is predicted to rise by up to 4.9% next year, according to the Institute of Grocery Distribution (IGD).
While energy and commodity prices will remain relatively stable heading into 2025, IGD’s latest Viewpoint Special Report ‘Hungry For Growth’ says businesses will face higher costs as a result of employer national insurance contributions and regulation.
The most significant costs will hit food businesses in three phases during 2025:
- April: rising costs to employment staff due to increases in National Insurance and National Living Wage.
- July: rising costs of food imports due to 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.
It’s estimated that the food sector will only be able to absorb between 20%-40% of these costs, meaning the rest will be passed on to consumers, with food inflation expected to hit anywhere between 2.4% and 4.9%.
The FDF’s latest State of the Industry report found that, on average, total production costs are reported to have increased by 2.8% over the year to September, while selling prices rose by 2.7%.
ONS data shows that costs to food and drink manufacturers, excluding labour costs, rose by 0.3% over the same period.
Ten percent of F&B producers told the FDF that average selling prices rose by more 5%, compared to 15% in Q2. Meanwhile, 6% of manufacturers saw a fall in their average price. Small businesses had the greatest increases in their average price at 3.9%, compared to 2.3% and 2.8% for mid-size and large businesses respectively.
For the year to September 2025, manufacturers expect their costs to rise by 2.9% and prices by 1.5%. As many as 63% of manufacturers expect production costs to increase by 0.1 to 5% and 69% expect the same range of increases for their prices.
IGD is predicting that food inflation will continue to exceed inflation in other items not just in 2025, but the following year as well.
“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,” said James Walton, chief economist at IGD.
“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.”
This news comes at the same time as Defra’s latest food security report shows a notable decrease in food secure households in the UK, amidst warnings from NFU boss, Tom Bradshaw, that he cannot rule out food shortages if farmers strike over inheritance tax concerns.
