In a stark warning for the industry, the Institute of Grocery Distribution (IGD) has said in the most severe but short-lived energy shock scenario, food inflation could more than double the current rate of 3.6% and rise to over 8% by the summer.

With UK retail food prices now around 38% higher than pre-covid levels, households are far more exposed to further price spikes.

In its updated inflation forecasts for the UK food and drink sector, IGD said that under this high-impact scenario, the sharp rises would be short-lived but severe, with average food inflation of around 6.4% across 2026, adding over £150 to the average household’s annual grocery bills, intensifying the pressure on family budgets which are already stretched by elevated housing, energy and essential living costs.

Even in IGD’s baseline scenario mapping which assumes no Middle East conflict, retail food inflation is forecast to average 3.8% in 2026, implying that UK shoppers collectively would still need to find close to £10 billion more to buy the same basket of food.

The new forecasts take into account the ongoing conflict in the Middle East, a key energy-producing region. The disruption is expected to impact food production directly, due to the energy-intensive nature of the supply chain, where oil and gas play critical roles at every stage.

Indeed, there have been warnings also from the Ulster Farmers’ Union, with Deputy President John McLenaghan stating that fertiliser prices have been skyrocketing.

“It’s not just price actually, it’s about availability,” he told BBC News NI. “You just can’t get it, it’s as simple as that.”

With nitrogen-based fertilisers a critical part of farming today, globally food production would be reduced by half without it.

As Chief Economist at IGD, James Walton explained, even in the best-case scenario, the conflict in the Middle East is likely to prolong the timeline for recovery from the cost-of-living crisis.

“Persistently high food prices continue to fuel concern over excess profits, based on the assumption that higher prices must mean higher profits for food businesses,” said James.

“Our Food Pound analysis shows that the evidence points in the opposite direction: margins for basic food and drink remain exceptionally thin, and in many cases have fallen in recent years. When margins are this tight, businesses have limited capacity to absorb global shocks, invest in resilience or protect supply. Over time, that increases the risk of weaker availability and greater price volatility.

“The most sensible route to moderating food inflation is not cost absorption, but improving productivity, resilience and availability. This includes investment in domestic production, supply-chain efficiency and policy approaches that avoid adding unnecessary cost and volatility to the system.”

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IGD research shows that weight loss medication usage is rising fast, with uptake among UK adults growing from 3.1% in June 2025 to 4.2% in October – that’s more than the number following a vegan diet. IGD has also captured the effects, with 35% of GLP-1 users eating out less often, 69% eating fewer snacks, and 48% eating fewer meals overall.

‘IGD Futures: GLP‑1’ is designed to provide a total consumption view of current and future changes in consumer and shopper behaviours, household dynamics, and category demand. It also brings together insights on wider GLP-1 impacts, such as global trends and the evolving science and regulations.

The programme uses a mixed methodology approach, incorporating longitudinal diary tracking of GLP-1 users, qualitative research into behaviours and sentiments, social listening in the UK and US, and global horizon scanning of industry responses and innovation.

Tom Wakeman, Insight Director at IGD said: “Consistently, the industry tells us they need to understand who is changing, how they are changing, and where the opportunities are.

“We have structured this programme to help businesses turn behaviour change into commercial advantage. Our unique holistic approach reveals what is shifting, why it is shifting, and what actions will unlock value. Powered by deep insight and reliable foresight, this programme projects the scale of impact so businesses can stay ahead.”

The ‘IGD Futures: GLP‑1’ programme promises a “year‑round flow of GLP-1 intelligence”, including:

• A detailed picture of GLP‑1 usage, user profiles, and how spend is shifting both in‑home and out‑of‑home into broader lifestyle categories.
• A holistic view across consideration, active use, tapering, and long‑term lifestyle change beyond current users.
• Future scenarios of global adoption patterns and shifts.
• Insight into strategic implications and next steps.

To register interest and find out more about the ‘IGD Futures: GLP‑1’ programme, email: AskIGD@igd.com

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New inflation data from the Office for National Statistics (ONS) covering October 2024, shows that ‘all items’ inflation, using the CPI method, moved upwards from 1.7% in September to 2.3% in October. IGD described this as an “abrupt movement” accounted for primarily by a change in the Ofgem domestic energy price cap.

The news comes as the British Retail Consortium recent stats showed that November was the first time in 17 months that shop price inflation was higher than the previous month, albeit remaining in overall negative territory.

Covering the period 1^st to 7^th November 2024, the BRC data shows shop price deflation was at 0.6% in November, up from 0.8% the previous month. Food inflation slowed to 1.8% in November, down from 1.9% in October, while fresh food inflation accelerated in November, to 1.2%, up from 1.0% in October.

Helen Dickinson, Chief Executive of the BRC said food prices increased for fresh products, such as seafood, which is more vulnerable to high import and processing costs, particularly during winter.

“While coffee prices experienced a momentary dip, price rises are imminent as global coffee prices approach record highs,” said Ms Dickinson.

“With significant price pressures on the horizon, November’s figures may signal the end of falling inflation. The industry faces £7 billion of additional costs in 2025 because of changes to Employer’s National Insurance Contributions, business rates, an increase to the minimum wage and a new packaging levy.

“If the government wants to prevent this, it must reconsider the existing timelines for the new packaging levy, while ensuring any changes to business rates offer a meaningful reduction for all retailers as early as possible,” she added.

Mike Watkins, Head of Retailer and Business Insight at NielsenIQ added: “Shoppers are still being cautious by shopping savvy for the essentials and holding back their discretionary spend, so the lower level of inflation should help sentiment ahead of Black Friday promotions.

“And with lower inflation than this time last year, many food retailers are extending offers and discounts to help sales momentum in December.”

The Institute of Grocery Distribution’s Chief Economist, James Walton notes that energy prices were still lower in October 2024 than in October 2023, but are now making a much smaller negative contribution to inflation than in September.

Looking ahead, he points out that business costs in the food and drink supply chain will rise further, due to government policy rather than ‘market’ effects, and food and drink businesses may be especially exposed if they have large workforces or many workers on lower wages and part-time contracts.

With business costs likely to rise and little margin available to absorb this, IGD warns it is likely that at least some cost increases will need to be passed to consumers, although not necessarily immediately.

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Meanwhile, the bulk of remaining inflation pressures (approximately 80%) is being exerted by services.

Explaining the current state of inflation, the IGD’s Chief Economist, James Walton said the cost of services – including eating out, travel and communications – rose by 5.2% in July (versus 5.7% in June).

“According to the ONS, “all items” inflation has risen marginally, up from 2.0% year-on-year in June to 2.2% in July, when measured by the CPI method,” said James Walton.

“This supports IGD’s view that inflation is now stabilising after a long period of decline. A major reason is that deep cuts in the cost of fuel and household utilities are now exiting annual comparisons.”

A key cost in providing services is labour, and as James Walton adds, in many instances it is hard to achieve scale efficiency or increase productivity, therefore delivering more services requires more labour input.

“Wages in the services sector are currently rising by about 4.3% year-on-year,” added James Walton. “Ongoing high wage growth in services is a key force driving inflation across the economy and, therefore, delaying interest rate reductions.

“In contrast, goods inflation was slightly negative in July, down 0.6%. This category includes food and drink, clothing, household goods and other tangible items. Retail food and drink inflation has declined from 19.1% in April 2023 to 1.5% in July 2024, while eating out inflation is more persistent, standing at 5.1%”

‘Interest rates will not be cut until the inflation pressure coming from services is under firm control’

In a breakdown of inflation’s influence of the food system, IGD points out that in the ONS 2024 CPI methodology, food and drink bought at retail is allocated 113 points out of 1000, with alcohol and tobacco adding a further 39. Catering services are worth 114. As stated, in July, inflation for food and drink bought at retail was 1.5% year-on-year, meaning that price change in this market is contributing less than one-tenth of all items inflation, while inflation for alcohol and tobacco was 7.3%, contributing around one-tenth.

However, catering services (i.e. eating out) saw inflation of 5.1%, with inflation here being more persistent. Price change in this market contributed about a quarter to all items inflation.

James Walton said consumers may be able to avoid the impact of this by moving out of the market, at least to some degree – and IGD’s ShopperVista data shows that at least some are choosing to do this.

“Both businesses and households would benefit from lower interest rates, which would reduce debt repayments and allow for higher spending and investment,” said James Walton.

“However, interest rates will not be cut until the inflation pressure coming from services is under firm control. Given the influence of the eating out market in driving overall inflation, the Bank of England may be expected to watch price change in the eating out market closely when making its decisions.”

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In his tenure at IGD, Jason has played a critical role in energetically galvanising the industry’s leadership and creating an open environment within IGD’s CEO Forum, as the organisation sets out its ambition to become the essential partner to a thriving food and consumer goods industry.

‘EXTENSIVE KNOWLEDGE’

Simon, who is already a highly active member of IGD’s CEO Forum, will take on the IGD Presidency on 1^st March 2024. Simon has extensive knowledge and experience in retail, having held a wide range of roles at M&S, Boots and Sainsbury’s, where he has been CEO since 2020.

Sarah Bradbury, CEO of IGD said: “Many thanks to Jason for the huge levels of commitment, guidance and enthusiasm he has brought to the role of IGD President. I’m particularly thankful for the support he has given me personally during the transition to my new role at IGD.

“Jason has also shown great support for our ambition to become the essential partner to a thriving food and consumer goods industry; he passes the baton to Simon at a critical time, when the work we do in bringing our industry together to tackle the big issues has never been more important.

“I’m looking forward to working closely with Simon, who has a huge breadth of industry experience and is already a great supporter and advocate of our work at IGD.”

‘UNIQUE ORGANISATION

Jason Tarry said: “I am incredibly proud to have been President of IGD. This is a very special organisation with a huge level of ambition to help our industry thrive. I have no doubt that Simon Roberts, working closely with Sarah and her team, will continue to drive this unique organisation from strength to strength.”

Simon Roberts said: “On behalf of the UK grocery industry, we thank Jason Tarry for his leadership in driving forward such an important agenda. IGD has a vital role to play in bringing the industry together to tackle the big issues we face and in helping us work towards creating a more resilient and sustainable food system for everybody.

“We can only achieve impactful change through collaboration and partnership across our industry, and I’m excited about working with Sarah and all the members of the IGD to find innovative solutions which will make a genuine difference for all our colleagues, customers, suppliers and partners.”

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