- The cost of other bills is down, but we’re still feeling the pinch at the checkout
It has been four years since Britons first started talking about a cost of living crisis, back at the end of 2021 when inflation soared and the price of essential goods followed.
While the cost of energy bills, one of the big contributors, has eased somewhat, households are still feeling the pinch at the supermarket checkout.
The price of food continues to outpace the headline inflation rate, and is reaching unmanageable levels for millions of people.
In last week’s Budget, the Chancellor Rachel Reeves said her aim was to bring down the cost of living – but there were no measures to ease the cost of a grocery shop.
So when will prices stop rising so quickly, and is there anything the Government can do to help?
Too expensive: Households are struggling with higher food prices that have outpaced inflation
Food prices outpace headline inflation
The Office for National Statistics’ most recent reading showed an overall easing of the headline inflation rate to 3.6 per cent in October.
While most other categories fell, food and non-alcoholic beverages increased by four percentage points from 4.5 per cent to 4.9 per cent.
This was driven by small increases in five of the 11 product classes, namely bread and cereals; meat; fish; vegetables and sugar, jam, honey, syrup and confectionery.
The British Retail Consortium reported an easing of food prices by 4 percentage points in November, but this was from an already high base.
Food prices fell in March 2025 to 3 per cent, not far off the overall reading of 2.5 per cent, before jumping to 4.4 per cent in May. By August, grocery inflation had risen to 5.9 per cent.
Fundamentally, the reason prices are so high is a question of supply and demand, says James Walton, chief economist at charity IGD Grocery.
‘There’s a shortfall of energy and a shortfall of ingredients and other materials we need,’ he told This Is Money.
‘If we look at basic food commodities that have seen lasting price spikes – olive oil, cocoa, coffee, tea, beef and lamb especially – there’s a shortfall of supply relative to demand.’
Energy costs have also been a consistent driver of higher prices because, unlike households, there is no price cap for businesses.
This means than when the cost of wholesale energy spiked following the start of the Russia-Ukraine conflict, their bills were essentially unlimited, hitting the bottom line of farmers and companies which produce food.
Tom Bradshaw, president of the National Farmers’ Union told This Is Money: ‘We’ve got a real challenge on energy costs, especially with standing charges.
‘High-capacity, low usage businesses may see a 10-fold increase in standing charges.’
Producers and suppliers have, in most cases, had to pass these costs onto consumers.
‘The key thing I’d point out is that just because prices go up, it doesn’t mean producers or other people in the supply chain are making a lot of money,’ said Walton. ‘Margins are very, very thin, to non-existent in certain cases.’
Higher minimum wage ‘will fuel inflation’
In a document published after the Budget, the Treasury acknowledged that food price inflation is ‘still too high at 4.9 per cent’.
It said an agri-food deal with the EU, which will see food businesses save up to £200 per shipment when trading fresh food, will help reduce prices.
But there were other measures contained in the Budget that experts believe could fuel inflation.
An above-inflation increase in the living wage across all age groups has been highlighted as one measure from the Budget that could backfire.
Clive Black, an analyst at Shore Capital, said the 4.1 per cent increase in the minimum wage will ‘likely see elevated CPI inflation persist, driven particularly by higher food prices’.
The NFU says this will only add pressure to prices, because farmers cannot absorb any more costs.
These higher wage costs are in addition to the changes introduced in last year’s Budget, including an increase in employer National Insurance contributions.
‘Profit margins are generally very low, which means any fresh cost added to the supply chain has to be passed on to the shoppers pretty quickly,’ said Walton. ‘ Around 10 per cent of the total workforce, between the farm and shop, are on the living wage. The increase in the national wage will add £2billion of supply costs, which will have to be passed on.’
The OBR’s own inflation forecast supports this, as it expects inflation to return to the Bank of England’s 2 per cent target in 2027, which ‘reflects stronger momentum in services price inflation and higher wage settlement’.
The Employment Rights Bill, which is expected to be passed next year, is another concern for business leaders, although the recent U-turn on day one protection against unfair dismissal will be of some comfort.
Elsewhere, the expansion of the sugar tax to include milk-based drinks – known as the milkshake tax – will put farmers under further pressure, said the NFU.
‘The tax on milkshakes will have to go through to the shelf, rather than expecting farmers to absorb it,’ said president Tom Bradshaw. ‘[The Budget] was a real missed opportunity and there’s a real concern it adds another notch onto food price inflation.’
IGD Grocery estimates that, following the Budget, Government policies will contribute to approximately a third of the pressure on food prices.
Milking it: Farmers say the milkshake tax announced in the Budget will add to their woes
There’s more pain to come in 2026
The ramifications of previous policy decisions are also starting to filter through to prices.
These include the Extended Producer Responsibility, which makes businesses responsible for the cost of managing and recycling their products after use.
Last year’s Budget will also have a longer-term effect on farmers and, therefore, consumers.
Most significant was the change to agricultural business relief, which will see farmers’ inheritance tax allowance slashed to £1million and which they continue to protest.
Bradshaw tells This Is Money: ‘There’s a general malaise of regulation which is increasing the cost burden on business. Inheritance tax [changes] is one of those, stifling investment. Why would you build the balance sheet today?’
George Hughes-Davies, founder of juice company Daily Dose added: ‘We work exclusively with British farmers, and Reeves is essentially going to destroy food security and food prices in the UK as this generation of farmers dies out.’
While policy decisions undoubtedly have an impact on the price of a weekly shop, Walton said the bulk of food inflation next year will be delivered by market effects.
‘It’s energy, basic food ingredients, and packaging. The Budget and Government policy have an inflationary effect, but it’s not the key thing driving prices.’
When will food prices come down?
Forecasts show that the outlook for grocery inflation in the short term is bleak and will run ahead of CPI for some time.
Pantheon Macroeconomics expects food prices to increase to 5.5 per cent in December, before falling to 4.4 per cent in January. It doesn’t expect grocery inflation to reach the Bank of England’s 2 per cent target until January 2027.
It’s important to note that even as food inflation falls, prices will continue to rise – just at a more manageable rate.
‘Food and drink will continue to become more expensive relative to other things shoppers have to buy,’ said Walton. ‘As a result, we’d expect to see shoppers continuing to make different decisions when they go food shopping.’
There is no immediate relief for consumers, but the food market is extremely competitive and supermarkets will battle for customer loyalty by running discounts.
But with food volumes relatively flat, it leads to a vicious cycle in which supermarkets are unable to invest in food security.
‘The increased taxation will slow volume growth which means less investment for the future resilience of the food system,’ said Walton. ‘There are opportunities for growth out there, and targeted policy changes could unlock this, especially in horticulture and poultry.
‘The most effective thing to manage food prices is maximising local production.
‘At the moment, we’re bringing in 40 per cent of food from overseas. A lot of that could be grown in the UK.’
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