The Food and Drink Federation (FDF) has taken a swipe at UK government policy as an uptick in grocery inflation prompted the industry body to up its forecast.
Prices for food and soft drinks are expected to accelerate to an annualised rate of 5.7% by December, compared to the FDF’s prior estimate of 4.8%, as “manufacturers suffer the financial burden of government policies”, according to a report from the London-headquartered group.
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Figures for August are due from the Office for National Statistics on Wednesday (17 September) and will likely be closely watched for further signs of an uplift in inflation for food and non-alcoholic beverages.
That measure quickened for a fourth straight month in July to reach an annualised rate of 4.9%, the fastest pace since February of last year. While it has retreated from the 19.2% peak in March 2023, a level not seen in more than 45 years, the FDF has presented a cautious tone.
The organisation suggests prices for food and soft drinks have risen 37% from the start of 2020 to July this year, outpacing the 28% increase in the wider economy, adding the “steepest” increases have been seen in everyday items such as milk, cheese, eggs and cooking oils.
Dr Liliana Danila, the chief economist at the FDF, said in a statement today (15 September): “Inflationary spikes between 2020 and 2023 were driven by geopolitical shocks, which created supply chain disruptions and sharp rises in energy and raw ingredients.
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By GlobalData“With most of these costs now stabilised, this new inflation surge is fuelled by the financial impact of domestic policies now trickling down to supermarket shelves.”
The FDF blames government “regulation and policy decisions” such as the hike in employer national insurance contributions and the new packaging tax, or the Extended Producer Responsibility (EPR) scheme.
Under the EPR, manufacturers across all industries are obliged to finance the cost of responsibly managing the disposal of packaging by environmentally friendly means rather than the tax payer.
According to the industry body, those policies are costing the food and drinks sector an estimated £410m ($557.6m) and £1.1bn a year, respectively.
“Initially this trend has been driven by surging production costs. Over the first three years of this decade, agricultural commodity prices rose by 51%, while UK gas prices quadrupled,” the FDF said. “However, despite most of these costs stabilising in 2024, food and drink inflation has persisted at well above the average rate through 2025.”
Emphasising the economic contribution from the UK food and drinks industry, the FDF suggests policy makers should establish policies to “incentivise investment” in areas such as automation and technology, and the “transition to a higher skilled workforce”.
Karen Betts, the CEO of the FDF, said food inflation in the UK is an “outlier against comparable European economies, and it’s persisting in the absence of energy or commodity shocks”.
She added: “The costs are such that companies can no longer absorb them and are having to pass at least some of them onto consumers.
“As this autumn’s Budget looms, it’s critical that government does not add further to the already high costs of regulation in our sector. We’ve been hit by rising taxes, employment costs, and a new packaging tax.
“We’re calling on government to help us turn this tide by partnering with industry to attract investment, accelerate productivity growth, boost skills, and grow exports across our sector.”
