Looking ahead to 2027, the report offers cautious optimism, forecasting a gradual decline in food inflation to 1.8% by mid-2027. However, the near-term outlook remains challenging, with inflationary pressures fuelled by a potent mix of regulatory costs, extreme weather events, and global commodity volatility. The report also outlines that food prices are now the top concern for UK shoppers, as they brace themselves for higher food bills in 2025.
There are multiple factors at play which are driving rising costs, such as regulatory change which is set to impact operational costs, including the revised business rate system and Extended Producer Responsibility (EPR)1. Other factors identified are extreme heat and dry weather, with the impact on food production already showing. While some crops like asparagus and strawberries have arrived early with promising yields, core staples like wheat and potatoes are under threat. Higher global commodity prices is also a factor, as global agri-food prices have edged higher than early 2024 levels, according to the UN FAO Food Price Index – but it’s a patchy picture beneath the surface.
Whilst food inflation is forecast to decline to 1.6%-2.6% in 2026, food prices are unlikely to go down in the immediate term. Even if energy and commodity prices dip, given the right geopolitical and climate conditions, those savings are expected to be outpaced by rising regulatory and structural costs. With margins for most businesses already very thin, it is likely that most cost increases will need to be passed on to shoppers, at least in part.
Michael Freedman, Head of Economic and Consumer Insight at IGD, encourages businesses to focus on agility and adjusting to changing behaviours:
“In a climate of subdued growth and persistent inflation, businesses that stay agile and anticipate structural change will find the greatest opportunities. Success now depends on strategic investment and the ability to navigate economic complexity with confidence.
“Businesses must also adapt to shifting customer behaviours, as we see more people prioritise value, convenience, and memorable experiences. Retailers and operators that can strike a blend of those qualities will stand out and unlock growth opportunities.”
Rising food prices have not gone unnoticed by consumers; it is their number one concern, overtaking worries about energy costs. According to IGD’s latest data, 83% of shoppers now expect escalating retail food prices, while 81% are similarly concerned about Away From Home expenses. This mounting unease is reflected in the IGD Shopper Confidence Index, which dipped to +1 in June, down two points from May, with three-quarters of consumers anticipating tax hikes. As the busy Christmas season approaches, consumer sentiment remains fragile amid ongoing geopolitical tensions and persistent pricing pressures.
Against this backdrop of uncertainty, spending habits have remained steady. Even amid encouraging conditions, such as a sunny spring, shoppers are displaying a cautious approach to their finances. There has been growth in the sales of private label products, and a notable reduction in impulse and indulgence purchases. IGD identified only 29% of consumers plan to cut back on grocery spending, a figure that has dropped by four percentage points since March, suggesting many have already tightened their budgets and have little room to cut back further. Instead, shoppers are more likely to look for savings on discretionary purchases like clothing and eating out, underscoring a clear prioritisation of food shopping over other categories.
As these patterns emerge, a deeper polarisation is becoming evident among shoppers. One in four (25%) expect their financial situation to worsen in the year ahead, with this figure rising sharply to 41% among lower-income households – a ten-point increase since May 2024. In contrast, only 11% of higher earners now expect to be worse off, a decrease of five points.
While financially secure consumers remain open to treating themselves through premium dine-in experiences and impulse buys, innovation is increasingly being driven by Gen Z, whose curiosity for new cuisines and novel formats is opening up fresh opportunities for businesses to engage and develop new offerings within the food sector.
IGD’s report calls on retailers, manufacturers, and policymakers to stay closely attuned to shifting consumer behaviours, particularly around value, convenience, and experience, as they navigate the road ahead.
For more detail on these insights, download the latest IGD Economic Viewpoint Report.
