The cost of groceries is projected to rise by nearly 5% in the coming year, continuing the trend of escalating food prices that has characterized the cost of living crisis over the past three years. While food inflation has slowed considerably from its peak of 19.2% in March 2023 to 1.9% currently, this deceleration represents a slowing rate of increase, not a decrease in prices. Although some staples like pasta, rice, and chicken have become cheaper compared to last year, the majority of food items are still experiencing price increases, albeit at a slower pace. The Bank of England’s prediction of a mere 1.1% food price increase for 2025 is viewed with skepticism by retailers and economists, who point to the Bank’s previous inaccurate inflation forecasts. Major supermarkets, including Sainsbury’s, Morrisons, and Marks & Spencer, have warned consumers to expect price hikes due to increased taxes announced in the Budget, a sentiment echoed by pub chain Wetherspoons.
The Institute of Grocery Distribution (IGD) forecasts a more substantial food price increase of up to 4.9% over the next year, attributing this to rising employment and regulatory costs faced by food companies. While energy and commodity prices are expected to remain relatively stable in 2025, several factors will contribute to upward pressure on food prices. Firstly, a significant increase in staffing costs is anticipated in April due to increases in National Insurance and the national living wage. Secondly, new import regulations related to trade with the European Union will push up the cost of imported food items starting in July. Finally, in October, packaging costs will surge as new regulations shift the financial burden of recycling and packaging recovery onto businesses.
The cumulative effect of these cost increases, occurring within a relatively short timeframe, will significantly impact food businesses across the UK. The IGD estimates that the food sector will only be able to absorb between 20% and 40% of these escalating costs, meaning the majority will inevitably be passed on to consumers. This projection contrasts sharply with the Bank of England’s optimistic forecast, suggesting that households should brace for a more substantial increase in their grocery bills. The rising cost of living, combined with these increased operational costs for businesses, creates a challenging economic environment for both consumers and the food industry.
Consumers are increasingly seeking ways to mitigate the impact of rising food prices. Strategies include actively looking for discounted items marked with yellow or red stickers, planning shopping trips with detailed lists to avoid impulse purchases, and opting for own-brand or value products over premium brands. Some supermarkets also offer programs featuring “wonky” or imperfect fruits and vegetables at reduced prices, providing another avenue for savings. Government assistance programs like Healthy Start vouchers for low-income families with young children, and supermarket vouchers distributed through the Household Support Fund by local councils, also offer some relief. However, these programs may not fully offset the anticipated price increases.
The confluence of rising employment costs, new EU import regulations, and increased packaging costs creates a perfect storm for the food industry, forcing them to pass on a substantial portion of these increases to consumers. This situation poses a significant challenge for households already grappling with the cost of living crisis, as they face the prospect of further increases in their essential grocery expenses. The IGD’s analysis suggests that food prices will remain elevated in the foreseeable future, urging consumers to adopt savvy shopping strategies to manage their budgets effectively. The food industry, particularly smaller businesses, will also face increasing pressure to absorb these rising costs, highlighting the need for potential government interventions or support mechanisms to mitigate the impact on both consumers and businesses.
The discrepancy between the Bank of England’s optimistic forecast and the IGD’s more pessimistic projection underscores the complexity of predicting food price inflation in the current economic climate. The Bank’s forecast likely assumes a more stable cost environment for businesses, while the IGD’s analysis takes into account the impending cost increases related to employment, imports, and packaging. This divergence in predictions highlights the uncertainty surrounding future food prices, and emphasizes the need for consumers and businesses to prepare for potentially significant increases. The coming year will be a critical period for both consumers and the food industry, as they navigate the challenges posed by rising costs and seek to find a sustainable balance between affordability and profitability.
