IGD warns 2026 is ‘critical year’ for food industry

Food and drink manufacturers face another “make-or-break year” in 2026, according to the latest IGD Economic Viewpoint report, ‘What to plan for in 2026’.

The analysis warns that persistent retail food inflation, coupled with fragile shopper confidence and rising household taxation, will create a highly volatile environment where affordability and selective indulgence define consumer behaviour.

Despite projections for a gradual decline, retail food inflation is forecast to remain stubbornly high, only easing slightly. IGD forecasts inflation to drop from an expected 4.3% in 2025 to 3.8% in 2026 and 3.3% by 2027. However, the report cautions that ongoing geopolitical shocks remain a critical risk factor, capable of triggering fresh price spikes at any time.

The economic pressure on businesses is amplified by severe constraints on consumer disposable income. Household taxation is expected to rise further in 2026, severely limiting spending power and reinforcing the need for value-driven shopping across the grocery sector.

The compounding pressures of inflation and tax mean consumer caution will intensify next year.

• The percentage of shoppers planning to cut back on grocery spend is forecast to reach 33% in 2026, a noticeable jump from 28% in December 2024.
• The away from home (AFH) sector is also set for strain, with 45% of consumers planning to cut back on spending in the near future.

James Walton, chief economist at IGD, stressed the urgency of the moment. “2026 will be a critical year for the food and drink industry. Businesses must stay relevant to value-conscious consumers while unlocking growth from resilient segments.”

Despite the overall environment of caution, the report identifies potential growth opportunities for manufacturers who can successfully balance their portfolio offerings.

IGD predicts that while consumers will generally seek value, they will selectively “trade up” during key seasonal events, notably Christmas. This creates pockets of opportunity for businesses that can effectively deliver affordability in staples while offering premium products for planned moments of indulgence.

Beyond economics, the report warns that businesses cannot afford to ignore the political landscape. By the end of 2026, the UK will be halfway through the current Parliament, creating a push for the Government to accelerate key policies and regulatory changes shaping the food system before the next General Election. The global political environment, including the impact of Donald Trump being halfway through a potential second US Presidential term, further adds layers of geopolitical risk that will influence trade and input costs.