Planning for 2025
20 November 2024Featuring top five predictions for 2025 from our recent Viewpoint report, Can UK food prosper in 2025?
1. Higher food inflation
IGD expects that food inflation will be higher in 2025 than our previous forecast, although it is unlikely to return to the levels seen over 2022-23. Measures announced in the budget, including Employer National Insurance contributions and the National Living Wage, will result in significant new costs to businesses creating inflationary pressure and higher food prices.
IGD will issue an updated food inflation forecast in December, incorporating budget changes and intelligence from business.
2. Increased business costs
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 and retailers have written to the Chancellor to warn of the impact on jobs, pay and prices.
Businesses at all points in the supply chain may have hoped for margin recovery in 2025, but the burden of these measures makes this unlikely, as they grapple with higher costs alongside low economic growth, and relatively low growth in household incomes.
3. Income divide
The OBR predicts living standards, as measured by real household disposable income per person, to increase a little between 2024-26 before slowing sharply between 2026-28. This slowing of disposable incomes will, in part, be due to a "substantial part of Employer National Insurance Contributions increase being passed onto real wages."
IGD expects confidence and spending to vary across income groups. We expect changes to food spend to vary by income group. The most affluent will be more open to trade up to premium food products; middle-income households may feel squeezed; lower-income households will remain unable to increase spend.
4. Confidence lag
As the government has set out the scale of its task, IGD’s Shopper Confidence Index has remained relatively subdued with some consumers fearing rising costs. IGD anticipates that it may take some time before confidence improves significantly. Christmas shopping behaviour will be the first indicator of how much shoppers will need to cut back.
5. Government delivery mode
Through 2025, it is expected that the government will move into delivery mode across a number of fronts, through cross-cutting "mission boards" focused on delivering against the five government missions.
Policy relating to the food system is often complex and politically challenging. The government may therefore decide that the early years following a general election victory may be the best time to tackle the more politically sensitive areas of food policy, such as health and the circular economy. The new Labour government is committed to bringing about the biggest change to employment rights in a generation and improving the skills landscape substantially. This will be delivered primarily through two distinct areas; the Employment Rights Bill and Skills England.
Businesses should look to get ahead of upcoming policy change and bring those in corporate affairs and commercial roles together to understand the financial implications of the various policy changes.
Find out more
In our new Viewpoint report, Can UK food prosper in 2025? IGD explores the outlook for the food system and how we can achieve stability and future prosperity.