Food inflation could hit nearly 5% next year, driven by the cost of the national living wage and the government’s extended producer responsibility packaging reforms.
A report by the IGD claims businesses will face “significant financial challenges” in 2025, as they grapple with the cost pressures.
It said that despite energy and commodity prices being likely to remain stable, companies were facing headwinds from significantly increased employment and regulatory costs in the coming year. This meant food inflation could hit anywhere between 2.4%-4.9%, it added.
The higher end of that estimate would mean food bills increasing by a whopping 40% in the space of five years.
“We do not see food prices going down in the foreseeable future,” said James Walton, chief economist at IGD.
“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.
“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.”
Meanwhile, a poll of its members released today by the FDF also shows the cost of regulation is causing huge uncertainty for businesses. The quarter three survey shows more than half (53%) of businesses say they are likely to limit their investment due to uncertainty about the impact of upcoming regulation, such EPR fees and employer NIC increases.
The FDF said together the increases would add billions of pounds in additional costs for UK food and drink manufacturers in 2025. Ensuring businesses had clearer guidance from government and were appropriately consulted ahead of these, and any future legislation, was vital, it added.
“With businesses facing billions of pounds of additional tax and regulatory costs next year, we urge government to double down on its growth mission,” said Balwinder Dhoot, FDF director of industry growth and sustainability.
“Investment is vital to the long-term health and resilience of our industry, as well as to countering inflation.
“From removing barriers to trade, to reviewing regulation and planning rules, adopting a more collaborative relationship with business, government can do more to boost business and consumer confidence, and drive investment.”
Meanwhile, a separate flash survey carried out by the federation found nearly three quarters (71%) of food and drink manufacturers believed the recent budget would have a negative impact on employee pay.
The number of unfilled vacancies also rose to 5.1% in Q3 2024. A quarter (25%) of businesses highlighted that labour and skills shortages would limit their investment in the year ahead.
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