IN Brief:
- Food inflation forecast to reach 5.7% by December 2025.
- 2026 forecast: 4.4% average, easing to 3.1% by December.
- Regulation, labour, packaging, and border costs are highlighted as key drivers.
UK food inflation is expected to remain elevated in the near term before gradually easing through 2026, but the underlying drivers are shifting away from the energy and agricultural input shocks that defined the last inflation cycle.
The Food and Drink Federation’s latest outlook projects food inflation rising to 5.7% by December 2025, before easing to 3.1% by the end of 2026, averaging 4.4% across 2026. The forecast is positioned against a backdrop of food inflation that fell to 1.3% in August 2024, but has since climbed again, reaching 4.9% in July 2025, highlighting the sector’s sensitivity to renewed cost pressure even after the peak of the cost-of-living surge.
The report’s most pointed argument is that the profile of inflation has changed. Traditional cost drivers, including energy and some agricultural inputs, have stabilised compared with the volatility of 2022 and 2023. In their place, regulatory costs are becoming the dominant factor shaping food and non-alcoholic drink inflation, landing across farming, manufacturing, logistics, and retail in ways that are difficult to absorb in a low-margin category.
Labour is a central pressure point. The report notes that the National Minimum Wage rose 69.6% between 2016 and 2025, and it flags additional cost impact from employer National Insurance changes, citing estimates of £410m in added costs for food manufacturing and £5bn for retail. It also points to upcoming labour reforms, including the Employment Rights Bill, which is expected to come into effect across 2026 and 2027, raising costs and reducing operational flexibility.
Packaging regulation is another explicit cost channel. The Extended Producer Responsibility scheme is estimated to add £1.1bn in costs for food and drink businesses from October 2025, with a Deposit Return Scheme due in 2027 expected to add further overhead. For manufacturers, the cumulative effect is a rising compliance baseline that competes directly with capex budgets and product development spend.
Trade frictions continue to add costs at the border and in documentation. The report highlights import checks and certification requirements introduced since 2024, including charges linked to border control post operating costs, plus additional port health, inspection, and laboratory fees for selected medium-risk products such as meat, milk, fish, and honey. On exports, it estimates export certificates have been costing the industry £60m a year since 2021.
The near-term path for prices will still be shaped by competitive dynamics in retail, where price-matching and margin pressure can delay the pass-through of costs. Even so, the report’s core message is that the industry is moving into an era where regulatory compliance is not a background requirement, but a primary determinant of cost inflation, and therefore a material constraint on pricing, reformulation, and investment.
