UK food inflation hits 4.5% as “perfect storm” of costs dampens growth

UK food and drink manufacturers are bracing for a prolonged period of pricing pressure as food inflation climbed to 4.5% in the 12 months to December 2025.

This marks an uptick from the 4.2% recorded in November, signalling a “subdued” end to the year for a sector caught between rising production costs and sagging consumer confidence.

According to new data, monthly food and non-alcoholic beverage prices rose by 0.8% in December, nearly double the 0.5% increase seen during the same period last year. While some commodities like olive oil and flour saw significant price drops — falling by 13.8% and 6.5% respectively — other staples spiked dramatically. Beef and veal led the surge with a 27.2% increase, followed by sharp rises in chocolate (15.5%), whole milk (14.6%), and coffee (13.7%).

Balwinder Dhoot, director of growth and sustainability at the Food and Drink Federation (FDF), noted that 2025 was a year of compounding financial burdens for the industry. Beyond fluctuating ingredient prices, manufacturers were hit with a new £1.1 billion Extended Producer Responsibility (EPR) packaging tax and a £410 million increase in National Insurance Contributions (NIC).

The FDF highlighted that since January 2020, input production costs—excluding labour and regulation—have soared by 39.9%. Crucially, this outpaces the 38.6% rise in retail prices over the same period, suggesting that manufacturers have been absorbing a significant portion of inflation to shield consumers, resulting in tighter budgets and diminished margins across the sector.

James Walton, chief economist at IGD, confirmed that the December figures align with forecasts, bringing the annual average for 2025 to 4.2%. However, he warned that relief is not immediately on the horizon. IGD predicts food inflation will average 3.8% in 2026 and 3.3% in 2027, driven by global supply shortfalls and a difficult operating environment.

Walton argues that the industry remains under significant supply chain pressure. According to IGD, the long-term solution lies in maximizing domestic production to align supply with demand. Targeted investment in UK horticulture and poultry could potentially boost annual domestic production by £1.3 billion by 2030, but this requires significant “policy unlocks” and government support.

The human cost of these figures is evident in data from the Office for National Statistics (ONS). In late 2025, 61% of adults in Great Britain reported an increase in their cost of living, with 95% of those citing rising food prices as the primary cause. Consequently, nearly 40% of consumers are now cutting back on essentials.

The FDF is calling on the government to better incentivise investment and productivity growth. Dhoot emphasised that such measures are essential to protecting the sector from future geopolitical shocks and ensuring manufacturers can minimise further price hikes for households already feeling the squeeze.