Bulletin: Food inflation slowing

Inflation slowing

Latest ONS data shows that “all-items” inflation moved from 3.6% year-on-year in October 2025 to 3.2% in November, measured by the CPI method – a large step down.

Inflation for food and non-alcoholic drink moved from 4.9% to 4.2%. This is in-line with IGD’s forecasts for this market.

IGD’s latest food and drink inflation forecasts, running to the end of 2027, can be found in our Viewpoint Special report, alongside our analysis of the Budget and the OBR report.

IGD opinion

The slow-down in food price inflation is welcome news and it aligns with IGD forecasts. From here, food inflation is expected to slow gradually, averaging about 3.8% in 2026.

However, price change in food and drink is still outpacing “all items” inflation, making food and drink more expensive, relatively speaking.

The price of food is still creating huge financial pressure for shoppers at all income levels, damping-down volume performance.

It is therefore crucial for grocery retailers to focus on value during the critical Christmas trading period.

Looking ahead to 2026, the food and drink industry will remain under supply chain pressure and it will face additional costs as a result of government policy changes.

In addition, businesses will need to go on investing to strengthen the food system and to become more resilient in the face of future challenges.

Unemployment still rising

ONS has also published labour market data this week, with new data running up to October 2025.

The headline unemployment rate stood at 5.1% in October 2025, up on the previous month. This is the highest rate seen since the peak of the Covid crisis in Autumn 2020.

Unemployment amongst young adults is a particular concern – for those aged 18-24 years and not in education, the unemployment rate in October was 12.8% (again, the highest since 2020).

In addition, 17.3% of those aged 18-24 and not in education are economically inactive, meaning that they have no job and are not actively looking for one.

Average wages in the latest month (September) were up 4.8% year-on-year, ahead of inflation, suggesting that at least some workers are still seeing “real terms” increases in earnings.

IGD’s latest Viewpoint report explores the future path of the UK economy and considers what it might mean for food and drink businesses.

IGD opinion

To some degree, rising unemployment is a predictable consequence of weak demand and low economic growth.

In fact, it might be argued that unemployment is still low, given the weakness of the UK economy. It has been much higher in previous periods of economic weakness.

However, it is clear that young adults in particular are struggling to find work. The unemployment rate for 18-24 year olds shows this.

One reason may be that increases in labour cost – especially via changes to the National Living Wage (NLW) – make it more difficult to employ those without workplace experience or qualifications.

Notably, employment in food and beverage service – a common “first job” for young adults, has declined slowly over the last three years, shedding 112,000 jobs. This is likely to be due to a combination of low demand from diners, compared with operators’ need to manage cost.

EPR – illustrative fees for Year 2

Defra has issued information on “illustrative” fees which will be charged for packaging under the Extended Producer Responsibility (EPR) framework in Year 2 (2026-27).

From Year 2, the fees system will be divided into tiers, with three tiers per material, reflecting the recyclability of packaging items.

The most readily-recycled items (“green”) will see much lower fees than more problematic items (“red”).

IGD opinion

Further development of the EPR system does not come as a surprise – this step was signalled well in advance.

The illustrative fees suggest that there will be quite wide differences in fees between green and red tiers.

These gaps may be expanded in years ahead, to create a financial incentive for businesses to shift to more recyclable packaging designs.

There is still some way to go in terms of optimising packaging and many packaging producers will see higher costs as a result of these changes (if actioned). These need to be accounted for when making financial plans for 2026 and beyond.

The Defra document shows a breakdown of the materials, showing how of the waste stream much currently falls into each tier.

Only 18% of fibre-based composites currently fall into the “green” tier, along with 31% of plastics, so these could be most exposed to the new tiering. Glass and metal packaging is mostly “green” already.

A key question remaining is the development of waste recycling facilities. In theory, money raised via EPR should be used by local authorities to develop improved recycling, supporting the government aim of creating a “circular” economy.

However, at present, authorities are not actually obliged to use funds for this purpose, so it is not certain that any packaging changes made by businesses will be accompanied by a parallel improvement in recycling capacity.

Planning reforms to boost domestic food production

The Government is consulting on its new National Planning Policy Framework and has proposed changes to boost sustainable growth of domestic food production, by enabling the delivery of better accommodation for livestock, on-farm reservoirs, greenhouses and polytunnels.

IGD opinion

Our Viewpoint report: Driving growth through a thriving food system, describes the development opportunity that exists across the horticulture and poultry sectors. Development could add £1.3bn in annual production value and support an additional 60,000 jobs.

This proposal could strengthen the UK’s ability to grow more of its own fruit and vegetables and produce more of its own poultry, reducing reliance on imports and improving food security.

Employment Rights Bill

The Employment Rights Bill has now passed through the House of Lords. It is expected to achieve Royal Assent before Christmas. Changes will begin to take effect from April 2026.

Interest rate cut

The Bank of England’s Monetary Policy Committee (MPC) has announced a small cut in the base interest rate. The base rate has changed from 4.0% to 3.75%.

IGD opinion

This decision does not come as a surprise – with the economy faltering, a small cut in base rates may help to support demand.

In fact, it might be seen as a recognition of the UK’s deep economic issues, with both persistent inflation and weak growth.

However, with all items inflation still outside the MPC’s target range (2.0%, plus or minus 1.0%), the room for a further cut is limited.