Bulletin: Budget impact, UK food prosperity, GDP

UK food prosperity

The government’s autumn budget delivered a raft of new measures impacting food businesses and farmers. IGD’s New Viewpoint report, Can UK food prosper in 2025? explores the outlook for the UK food system and how we can achieve stability and prosperity. Some of the key findings include:

•    IGD expects that food inflation will be higher in 2025 than our previous forecast
•    policy changes announced in the recent Budget will increase costs for many food businesses
•    IGD expects confidence and spending to vary across income groups
•    it may take some time before confidence improves significantly
•    the government will move into delivery mode across a number of fronts in 2025

Download the free report here.

Budget impact

One major business consequence of the Budget will be an increase in the cost of employing people, especially in lower-paid roles. Several major food businesses have expressed concern. Hospitality businesses have written to the Chancellor to warn of job losses and business closures.

Changes to the secondary threshold are seen as especially harmful.

Download our free new Viewpoint report, Can UK food prosper in 2025? to learn more.

IGD opinion

Food and drink will be especially exposed to the increased labour costs since it is a very large employer, and many activities are labour-intensive. The inflationary impact of higher labour costs can also accumulate as goods move through lengthy supply chains. Download our free new Viewpoint report, Can UK food prosper in 2025? to learn more.

GDP declines

The ONS has reported that GDP has declined by 0.1% in September and has increased by 0.1% for the three months to September 2024. Services output showed no growth in September.

Retail sales volumes are estimated to have risen by 0.3% in September 2024, following a rise of 1.0% in August 2024.

Wage growth

New data from the ONS shows that average wage growth in the UK remains fairly strong, despite poor economic performance. Average weekly pay in Q3 2024 was £693, up 4.2% on the same quarter a year before. Gains were naturally less impressive when adjusted for inflation, however. Wages were up 2.2% year-on-year when adjusted for CPI, and up 1.0% when adjusted for RPI.

The Bank of England Decision Maker Panel suggests that employers expect wage growth to continue at about the current rate for the next year at least, whilst the recent OBR report forecasts slightly lower average wage growth, much of which will be eroded away by inflation.

IGD opinion 
Average pay data has the benefit of simplicity but, for businesses, it is useful to understand pay and income change in more detail. Workers in the lowest-paid roles may expect fairly strong pay growth in 2025 due to a 6.7% increase in the National Living Wage, scheduled for April. However, only about 3 million workers are paid at this level (less than 10% of the total).

Better-paid workers may see their pay growth limited as employers attempt to accommodate changes in National Insurance payments. The OBR states explicitly that employers will pass on the impact of higher NI contributions in the form of lower-pay settlements.

Inactivity concern

Labour market inactivity remains a major concern for government. About 9.2 million people aged 16-64 years were inactive in Q3 2024 (21.8% of the total). The most common reason given for inactivity is sickness, with most of these being long-term sick.

IGD opinion 
Some analysts have suggested that the UK labour force might be increased by addressing long-term sickness and getting patients back to work – this was policy under the previous government. However, of 2.8 million people who were inactive due to long-term sickness, only 22% indicated that they wanted to work in the latest survey.

Other large groups of inactive people are students and those with family or caring responsibilities – these people are usually committed to this activity and are unlikely to be available for work until courses or family duties are complete. Efforts have been made to expand free childcare provision, but the industry may lack capacity and, again, only a minority of carers state that they want to work.

Perhaps the most promising targets for any effort to move the inactive into the workforce could be those who have retired before 64 and those who are inactive for other reasons (e.g. independently wealthy). However, these may take a good deal of persuasion.

Emissions target

The Prime Minister has committed the UK to an 81% emissions cut by 2035. Speaking at the COP29 Summit in Baku, Azerbaijan, The Prime Minister announced an investment programme in British energy. Previously the government had committed to a 68% cut by 2030.

The Prime Minister said the new UK target would be "difficult" but "achievable", and he wanted the government to "tread lightly on people's lives".

Download our new report A Net Zero Transition Plan for the UK’s Food System, commissioned by IGD and developed by consultants EY and global environmental NGO WRAP. This provides an independent, evidence-based view of how the UK food system in its entirety, can reduce greenhouse gas emissions in line with a 1.5-degree SBTi outcome and meet the UK’s legally binding national target.