Why is UK retail food inflation still rising?

New for July with IGD’s most up-to-date forecasts for retail food inflation, and the retail and Away From Home markets, our free report ‘Viewpoint: UK Food Inflation Forecasts 2025–2027’ warns that food inflation will peak at 5.1% in 2025.

This will put further pressure on households and businesses as the UK economy continues to grapple with sluggish growth and persistent price pressures. In turn, this creates a heightened risk of stagflation - a period of stagnant economic growth combined with sustained inflation.

But why is retail food inflation still high in the UK? Here are the main causes.

Regulations fuelling higher prices

After climbing steadily in early 2025, UK food retail inflation spiked to 4.4% in May, before creeping up to 4.5% in June. It’s likely this is mainly driven by businesses passing on rising costs caused by the government’s October 2024 Budget.

Looking ahead, we identify several regulatory changes which will likely further increase operational costs for businesses:

• Business rates: Larger retail stores will incur higher rates under the revised system

• Budget 2025: If new measures are brought in, excise duty is most likely to be inflationary

• Extended Producer Responsibility (EPR): Though many fees are lower than expected, businesses will still face new significant costs

• EU Deforestation Regulation (EUDR): Businesses selling or exporting goods in the EU will face new admin costs

• National Living Wage (NLW): It’s likely this will continue to rise yearly

• Deposit Return Scheme (DRS)

Extreme weather

Unusual and prolonged periods of extremely hot, dry weather are driving up costs by impacting food production in the UK and continental Europe. This is most notable in core staples like wheat and potatoes.

These conditions have also caused issues in logistics and getting fresh produce to market, such as by damaging infrastructure.

With the Met Office expecting the UK climate to continue changing, there is no sign of respite. In fact, it may worsen over time.

Commodity prices

According to the UN FAO Food Price Index, global agri-food prices have edged higher than early 2024 levels. This is mainly caused by vegetable oil and dairy. Outside the Index, coffee and cocoa prices are also very high, impacted by weather, disease, and tight supply.

In the UK, farms continue to deal with input costs at record highs, meanwhile fertiliser and vet bills are also climbing. Output prices are rising, too, fuelled by surging beef, lamb, and milk prices.

What can businesses do?

In a climate of subdued growth and persistent inflation, businesses that stay agile and anticipate structural change will find the greatest opportunities. Success now depends on strategic investment and the ability to navigate economic complexity with confidence.

Businesses must also adapt to shifting customer behaviours, as we see more people prioritise value, convenience, and memorable experiences. Retailers and operators that can strike a blend of those qualities will stand out and unlock growth opportunities.

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