UK Food Group Seeks Easier Regulatory Burden as Inflation Bites

A price sign beside peaches for sale at a farm shop in Rochester, UK, on Tuesday, Aug. 15, 2023. Grocery price inflation has fallen sharply, another sign that Britain's cost-of-living crisis is gradually easing for consumers. Photographer: Hollie Adams/Bloomberg Photo by Hollie Adams /Bloomberg

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(Bloomberg) — Food inflation in the UK is expected to accelerate to the fastest pace since the start of last year as manufacturers struggle with the “financial burden of government policies,” according to a group that represents the industry.

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The Food and Drink Federation now sees food inflation climbing to 5.7% by December, up from its previous forecast of 4.8% given in March. That would be the highest figure since a 6.1% increase in January 2024.

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“While traditional cost drivers such as energy and agricultural inputs have stabilized, regulatory costs are now the dominant factor driving food and drink inflation,” the federation said in a report. “These pressures compound weakened consumer demand and the prolonged margin erosion the sector has faced.”

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The Bank of England is watching grocery bills closely because of their salience for consumers. Some rate-setters are growing concerned about rising household inflation expectations, which have hit their highest level in two years. Consumers’ price fears risk fueling wage demands, creating a feedback loop that keeps inflation elevated.

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Markets are now expecting a slower pace to interest-rate cuts as the central bank tries to stamp out a fresh spike in inflation.

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The federation’s revised forecast is in line with a July warning from the British Retail Consortium, which said that food inflation will hit 6% by the end of the year as retailers raise prices in response to April’s hike in payroll taxes and the minimum wage.

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Chancellor of the Exchequer Rachel Reeves is due to deliver the UK’s annual budget on Nov. 26. “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,” the federation’s chief executive Karen Betts said in a statement accompanying the report.

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“We’ve been hit by rising taxes, employment costs, and a new packaging tax,” she said. “We’re calling on government to help us turn this tide.”

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Looking further ahead, the federation expects a “gradual easing,” with food inflation projected to slow in 2026, averaging 4.4% across the year and reaching 3.1% by December 2026.

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—With assistance from Irina Anghel and Tom Rees.

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