UK food inflation top consumer concern as weather and policy squeeze supply chains

Retail food inflation in the UK is set to peak at 5.1% in late summer 2025, significantly surpassing general inflation, warns the latest Institute of Grocery Distribution (IGD) report. As households and businesses brace for increased pressure, food prices are now the top consumer concern, overtaking energy.

The analysis indicates that food prices will rise faster than other consumer goods, propelled by regulatory changes, climate extremes, and global market uncertainties. The food categories expected to be hit hardest include cereal products, meat (especially red meat), dairy, and convenience foods — most impacted by labor costs and government policy.

Furthermore, extreme heat and dry weather threaten key crops like wheat and potatoes, in line with international research mapping the impact of climate change on fresh produce last week.

With the Met Office forecasting that the UK will continue to be hit by increasingly extreme weather, farmers feel the heat as input costs remain high and fertilizer bills increase.

“UK farming and food processing must urgently shift to forms of production optimized for a changing climate,” James Walton, chief economist at IGD, tells Food Ingredients First. 

“Since novel or exotic crops won’t meet population demand for over 70 million people, the focus should be on producing popular foods more sustainably. Last year, we worked with businesses across the supply chain to launch the Net Zero Transition Plan, a data-driven strategy toward a more sustainable food system.”

In addition to climate change, regulatory measures, such as changes to business rates, extended producer responsibility, which requires packaging producers to bear the total cost of managing packaging waste, and the EU Deforestation Regulation, are squeezing margins across the value chain.

Changing consumer behavior

IGD research shows that more than eight in ten consumers are concerned about rising food prices in the retail and away-from-home sectors. 

However, while many households already made spending adjustments during the cost-of-living crisis, only 29% plan to cut grocery budgets further.

“Amid economic uncertainty, shoppers are cautious with their finances, increasing private label purchases while reducing impulse and indulgence buys,” says Michael Freedman, head of economic and consumer insight at the institute.

“We identified only 29% of consumers plan to cut back on grocery spending, suggesting many have already tightened their budgets and have little room to cut back further.”

“Instead, shoppers are more likely to look for savings on discretionary purchases like clothing and eating out, underscoring a clear prioritization of food shopping over other categories. Businesses should adapt to shifting customer behaviours by offering value, convenience, and memorable experiences to attract customers and drive growth.”

“Micro occasions”

Around 43% of respondents say they will reduce their eating out, and a quarter expect their financial situation to worsen in the coming months. Retailers now face a changing landscape where careful spending and small indulgences on “micro occasions” reshape demand.

The food categories expected to be hit hardest include cereal products, meat, dairy, and convenience foods.“Premium retailers are well placed to meet the needs of shoppers seeking treats at home, instead of dining out, by offering premium at-home experiences,” Walton tells us.

“It’s a tougher challenge for mid-market retailers who serve a more diverse shopper base, but access to detailed loyalty data and retail media helps identify and target the unique needs of every shopper. The integration of AI can allow for tailored incentives that balance premium offerings with value, ensuring no shopper feels left behind.”

However, as the economic context remains difficult, high-income households are usually better protected from increasing costs and remain open to treating themselves through premium dine-in and impulse buying, according to the institute.

“Food-curious” Gen Z consumers and those seeking to recreate restaurant experiences at home also offer opportunities for F&B businesses to diversify revenue streams and provide new cuisines and novel formats.

“In a climate of subdued growth and persistent inflation, businesses that stay agile and anticipate structural change will find the greatest opportunity. Success now depends on strategic investment and the ability to navigate economic complexity with confidence,” Walton says in the report.

As the UK government seeks to create economic growth and stability amid the ripple effects of COVID-19 and geopolitical conflicts, the IGD says its plan is “rational but expensive.” 

It notes that even if it is implemented effectively, households and businesses may not see benefits for years.