Including food inflation, NPM 2018, Cost of living, business rates, wages, unemployment, Middle east, soft drinks levy.
Inflation lower, but pressures are rising
Inflation eased in June, but the pressure on shoppers, government and the food industry has not gone away. Inflation for UK shoppers softened in May, according to ONS. Background inflation fell from 2.8% year-on-year in May to 2.6% in June, as measured by the CPI method - still above the government's target rate, but within the allowable range. Lower fuel prices were a key contributor the slowdown.
Food and drink inflation also fell, from 2.2% year-on-year in May, to 1.7% in June. Month-on-month, food prices actually fell very slightly as well, which is quite unusual. Reductions in year-on-year inflation for sugar, chocolate and other sweet things were a major driver. Beef, dairy and oils / fats also made notable contributions.
See our latest article, Food inflation eases, but risks are building
IGD opinion
With many households under continuing financial pressure, this easing of inflation is very welcome. However, lower inflation does not mean living costs are falling significantly, and dealing with the cost-of-living is still central to government messaging.
While food inflation remains below expectations, pressures are continuing to build within the food supply chain. Higher energy costs, regulatory requirements, weather-related disruption and geopolitical uncertainty are all creating additional costs for businesses.
Current inflation rates may therefore understate the pressures facing the food system. While affordability remains a priority for households, businesses will be watching closely to see whether these cost pressures translate into higher food inflation later in the year.
NPM 2018 back in the spotlight
The Health and Social Care Committee has called on the government to implement the 2018 Nutrient Profiling Model (NPM) by the end of 2027, arguing that key HFSS policies should no longer rely on a model developed more than two decades ago. MPs said government should “hold firm” against calls for further delay and progress work on calculating free sugars.
See our article, Select Committee urges NPM 2018 by end of 2027
IGD opinion
While the recommendation is not binding, it increases pressure on ministers ahead of expected decisions on NPM 2018 and Mandatory Health Reporting. For food businesses, it signals that nutrient profiling could move higher up the policy agenda and shape future regulation.
Government doubles down on cost-of-living support
The new government has put reducing household costs at the centre of its agenda, with Prime Minister Andy Burnham telling ministers that Britain must become a “cost-of-living government” and give people “a sense that help is coming.”
This week, the government announced the removal of VAT from household electricity bills from October, worth around £45 a year to the average household, and a return to the £2 cap on bus fares in England from January. Ministers have also been tasked with identifying further measures to reduce pressure on household budgets.
IGD opinion
The government’s early focus reflects the continued importance of affordability to UK households, even as inflation eases. While targeted support can provide short-term relief, consumer spending remains constrained for many households and affordability is likely to remain a key consideration for food and grocery businesses. Longer-term improvements in living standards will depend on stronger economic growth, higher productivity, and continued progress in bringing inflation under control.
While measures such as lower bus fares or reduced energy bills can provide short-term support for households, food markets operate differently. Food supply chains are complex, involving many businesses across farming, manufacturing, logistics and retail, and competition in the sector is already intense.
As a result, there are limits to the extent that governments can directly influence food prices. Over the longer term, more stable food prices are likely to be supported by improving productivity across the food system, increasing productive capacity, reducing waste, and strengthening supply chain resilience, including adaptation to climate-related risks.
Business rates cut for hospitality venues
The government has announced a further 20% reduction in business rates bills for pubs, clubs, and live music venues in England from April 2027. Ministers say nearly 32,000 venues will benefit, with a typical pub saving around £1,100 next year.
IGD opinion
This will be welcomed by eligible operators, particularly after previous increases in business rates and other employment costs added pressure to hospitality. UK Hospitality had warned that earlier rates changes risked creating a “chilling effect” on investment and job creation. For foodservice and hospitality, the measure offers targeted relief, but wider cost pressures remain.
Real wages continue to edge higher
Workers' spending power continues to improve, as inflation remains below wage growth. However, gains remain modest and many households are unlikely to feel significantly better off.
New ONS data shows that the UK labour market improved marginally in the last quarter, with the employment rate up marginally, whilst unemployment fell very slightly.
As before, younger adults remain highly vulnerable to unemployment, with 14% of 18–24-year-olds being unemployed (i.e. not working but looking for work), which is the highest rate for any adult age group.
Wage growth has slowed since last summer. In the last three months, the average wage grew by 4.2%, which means that wages - for those in work - outpaced inflation, just a little, but probably not enough to make workers feel much better off.
Public sector wage growth continues to outpace private sector wage growth, which has slowed fairly consistently since Autumn 2024.
IGD opinion
Those in work are likely to be seeing their real spending power rise, even if this is happening only slowly. However, this improvement is being driven primarily by lower inflation rather than stronger wage growth, making gains in living standards vulnerable to any renewed inflationary pressure.
Comments from the new Prime Minister show that the cost-of-living and living standards will remain at the forefront of government policy.
IGD's ShopperVista data consistently shows that inflation has a significant influence on shopper confidence, sentiment, and perceptions of financial wellbeing. While spending power is gradually improving, many households are still likely to feel under financial pressure and remain focused on value.
Houthis escalate Red Sea shipping threat
Rising tensions in the Middle East are adding to inflation risks for food and grocery businesses. Reports of further attacks on shipping in the Red Sea underline the vulnerability of one of the world’s most important trade routes, with potential implications for energy, freight, and wider supply chain costs.
Oil and gas prices were already on an upward trend following renewed fighting between the US and Iran, so the latest Houthi activity comes at a time when markets are sensitive to further disruption.
IGD opinion
The immediate impact on food prices is likely to depend on the duration and scale of disruption. However, any sustained threat to Red Sea shipping could increase energy, fertiliser, and transport costs, adding pressure across food and consumer goods supply chains. Similar dynamics were seen following the outbreak of the Ukraine conflict, when higher energy and fertiliser costs fed through into food inflation.
SDIL changes: technical consultation now open
The government has published draft legislation for the Soft Drinks Industry Levy (SDIL) changes, opening a technical consultation as part of Finance Bill 2026-27, which closes on 7 September 2026. The changes lower the sugar threshold from 5g to 4.5g per 100ml and bring milk-based and milk-substitute drinks into scope, having been confirmed at Autumn Budget 2025. These changes will come into force on 1 January 2028.