Bulletin: The impact of the UK-EU trade deal

The UK-EU trade deal

The UK and EU have announced a new deal, aimed at strengthening relations. Details remain unclear for now. For food and drink businesses, key points include:

• Smoother cross-border trade for agri-food goods

• Continued EU access to UK fisheries for 12 years, subject to licenses and quotas

• Joining of carbon markets, to prevent taxes on movement of carbon-intensive goods (e.g. fertilizer)

See our latest article here.

IGD opinion

The new deal promises smoother trade for qualifying agri-food goods, offering businesses new opportunities. Lower trade barriers could reduce costs for food and drink companies on both sides of the border, providing a modest but meaningful reduction in UK food inflation – though risks like poor harvests and rising labour costs might offset these gains. The deal signals improved UK-EU relations, but its commercial impact may be limited.

Sharp inflation increase

Food and drink retail price inflation in April 2025 increased to 3.4% year-on year, up from 3.0% in March, by the CPI method. Prices for food Away From Home (AFH) rose 3.9%, compared with 4.2% in March.

All items” inflation strengthened sharply, from 2.6% in March to 3.5% in April. Household utilities and transport costs were a major reason for this increase – a revised energy price cap came into effect in April.

Download the latest FREE Viewpoint report, How to respond to rising costs in 2025, which explores rising costs and their impact on retail and Away From Home food and drink inflation, plus economic, consumer and policy insights.

IGD opinion

The step-up in food and drink retail inflation is not surprising.

IGD has forecast that inflation in this category would step-up in April 2025 due to increasing labour costs, with inflation averaging around 3.4% over the year.

So far, prices have moved in-line with this forecast.

There are further cost increases in the pipeline, especially Extended Producer Responsibility (EPR) – the first EPR bills will fall due in October.

Reasons for the step-down in AFH inflation are more obscure – these businesses are, if anything, more exposed to labour cost pressures than retail.

Increased general inflation will mean further pressure on UK households and make it harder for the Bank of England to cut interest rates to support demand.

Dry weather impact

Spring 2025 is rewriting weather history, with The Met Office  reporting higher temperatures, reduced rainfall, and abundant sunshine.

A warm, dry spring underscores the UK food system’s vulnerability to climate change. As highlighted in the IGD report, How resilient is your business?, adaption to climate change is crucial.

See our latest article here.

Winter fuel payments

The Prime Minister has announced that changes to Winter Fuel Payments (WFPs) for older people will be reversed.

On coming to power, the government made entitlement to WFP, which was universal, dependent on receiving means-tested benefits.

This reduced entitlement from 7.6m households to 1.5million households. The government now intends to expand entitlement once again, although details and timings are not clear. The WFP was worth £200-300 over winter 2024-25, depending on age.

IGD opinion

Many will welcome this decision, but it is not clear that there will be major benefits for the food system.

It is likely that many older households will continue to spend large sums on heating, with or without WFP, especially when winter is harsh.

Energy prices to fall

Ofgem has announced that the energy price cap will decline from 1 July by 7% to £1,720 per year for a typical household who use gas and electricity and pay by direct debit.

Keep Britain Working

As part of the Keep Britain Working independent review, Sir Charlie Mayfield wants to hear from businesses about their experiences of supporting people with health conditions and disabilities – what works well and what could be improved, so that more people thrive in work.

The link to the survey is here: Keep Britain Working Engagement, and will be live until mid-June.