The UK’s economy is set to remain fairly subdued this year, with US trade tariffs and muted consumer confidence threatening any chance of growth for food and retail businesses, a new report shows.
New research by the Institute of Grocery Distribution argued that although the UK’s political position is “arguably the most stable it has been for nearly a decade”, recovery for the nation’s food system is still threatened by persistent inflation and Donald Trump’s trade policies.
The report titled ‘A shaky start to 2025’ shows a domestic picture of tentative recovery as the year kicked off with muted business and shopper confidence, slow growth in GDP, and the emergence of trade disruption linked to Trump’s presidency.
“The current combination of weak growth and inflation is a difficult one, threatening stagflation, which is hard to deal with via monetary policy,” said Michael Freedman, IGD’s head of economic and consumer insight.
“Shoppers have become accustomed to saving money with loyalty cards and buying more products on promotion, with lower-income groups planning to cut back their grocery and eating-out spend.”
Read more: What a Donald Trump presidency will mean for food & drink
IGD data from December 2024 showed as many as 81% of shoppers expected food prices to increase (an increase of 4% versus September 2024), and 63% plan to use loyalty cards more, up 4% compared to December 2023.
Businesses should expect consumer sentiment to be muted in the short term amid concerns that the cost of living crisis will worsen for many Brits.
Additionally, the US’s new approach to trade tariffs could further up prices and dampen business growth in the UK, said IGD’s chief economist James Walton.
But pressures on food businesses will come “from many directions”, according to IGD economists, with inflation particularly rising in the out-of-home sector, where labour costs are increasing alongside labour demand.
Adding to these challenges are the pressures of legislative compliance, particularly the long-awaited extended producer responsibility scheme, which is due to come into effect in October, and which will see manufacturers shoulder the costs of the environmental impact of their packaging.
However, the industry is optimistic about the new government’s “appetite for putting new strategy in place that could leverage the UK’s political stability to power sustainable growth”, the report claimed.
Matthew Stoughton-Harris, head of corporate affairs at IGD, added: “Domestic political stability provides the government with an opportunity to deliver against its strategic vision as set out towards the end of 2024, through the Plan for Change and industrial strategy.
“The new food strategy is a significant step in the new government’s approach to the food system and, once defined, is likely to shape our food system for years to come.”
Read more: Will the food industry get behind Labour’s new National Food Strategy?
The IGD said the long-awaited food strategy, which is in the works between industry and government, will provide a “significant opportunity to boost resilience and unlock growth opportunities across the whole system, including supporting shoppers towards healthy and sustainable choices”.
The government is set to publish a National Food Strategy this year, which is said to build on Henry Dimbleby’s work for the previous Conservative government, although it is not yet clear when it will land.
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