Bulletin: UK economy under growing pressure

Fragile UK economy faces rising risks

The Office for Budget Responsibility (OBR) has issued its latest annual Fiscal Risks & Sustainability report. Key points are:

• UK public finances are in a weak state, especially compared with peer nations

• Attempts to manage public debt have had limited success, at best

• Pension costs are rising far ahead of expectations

• Planned tax increases and spending cuts have not been carried through (e.g. changes to PIP)

• Borrowing costs are rising

• Strategic risks remain, including trade disruption, defence spending and cyber attacks

• The ability to respond to future shocks has been eroded

IGD opinion

There is no good news here … but this is not a surprise. The general message is much the same as in previous editions, only more emphatic this time – OBR Chairman Richard Hughes has been using unusually stark language in public.

UK public finances are in a fragile state, and without major reform, long-term sustainability is in doubt. In fact, failure could come sooner than expected. The Prime Minister has indicated that he is reluctant to raise taxes on the majority of households. However, it is also necessary to reassure bond markets that public finances are in hand. If confidence falters, borrowing costs could spike further tightening the squeeze on government plans and household wealth.

This pressure will ripple through the food and drink system. IGD’s recent forecasts for retail and Away From Home reflect a conservative outlook (forecasts can be found on Retail Analysis, for subscribers).

As the government seeks savings, expect sharper focus on both health and climate change – both of which demand action from the food system.

Declining growth

The ONS has reported that GDP has declined by 0.1% in May, following a decline of 0.3% in April.  Growth has increased by 0.5% for the three months to May 2025, compared to the previous three months.

IGD opinion

The UK economy is struggling to achieve consistent growth. With growth weak and inflation persistent, there is high risk that the economy will enter “stagflation” – a tough combination of weak growth and price increases.

Get the insights on economic growth and our new food inflation forecasts first with the new Viewpoint report: UK food inflation forecasts 2025–2027.

Drought to downpour: the food system challenge

After the UK’s driest spring in over a century, farmers now face a hot, dry summer—and the threat of flash floods. Droughts have been declared in Yorkshire and the Northwest, with reservoirs running low and crops under pressure.

Climate change is no longer a warning—it’s the new normal. With 84% of farmers reporting climate-related losses, the food system must adapt fast. From heat stress to fodder shortages, the risks are rising.

Food security is national security. Resilience starts with action—now.

See our article for further details.

Nature crisis: UK food system holds the key

The UK is one of the most nature-depleted countries in the world—and the food system is both at risk and responsible. With 70% of land used for farming, agriculture plays a pivotal role in reversing biodiversity loss.

Momentum is building, but action is fragmented. Policy, finance, and collective action can unlock nature recovery.

See our latest article to understand the risks, opportunities, and what’s next.

Wales deposit return scheme

Wales is pushing forward with a Deposit Return Scheme (DRS). With glass remaining in scope, the scheme aims to tackle rising litter, boost reuse, and build on Wales’s recycling record.

The Welsh Government has stated that it is working closely with industry and UK partners to ensure the scheme is practical, interoperable, and future-proof—while avoiding unintended costs.

IGD opinion

Businesses will appreciate clarity on what Wales is doing but questions remain regarding how cross-border issues will be resolved to reduce the risk of fraud from two different schemes.

Tariffs: US signals tougher trade stance

The US is reactivating its tariff strategy. After a 90-day pause, new tariffs on key partners—including Japan and South Korea—will take effect from 1 August. More countries are expected to follow. The US frames this as correcting “unfair” trade and pressuring others to negotiate.

IGD opinion

This move confirms tariffs remain a core part of US foreign policy. The UK is not on the list of nations covered by this action, nor is the EU – this may reflect the willingness of these partners to negotiate and/or make concessions. US relationships with China, the largest single source of US imports remain subject to an uneasy truce.

All nations are likely to suffer economically if the global marketplace remains unstable. Markets are already reacting, with the US dollar weakening and stocks dipping.

IGD’s Future of the UK Food System conference

Register now for IGD’s Future of the UK Food System conference in 2026 to hear further insights from IGD experts on the challenges and opportunities shaping the industry’s growth potential.

The event will entail fresh insights from our climate model and bringing together leading voices from across the industry. Stay informed and be part of shaping the future.