The Cost of Living Crisis and the Struggle with Grocery Prices
Four years have passed since Britons first began discussing the cost of living crisis, which became a major topic of conversation in late 2021 as inflation surged and the prices of essential goods followed suit. Although the cost of energy bills—once a significant contributor to the crisis—has eased slightly, many households are still struggling at the supermarket checkout.
The price of food continues to rise faster than the headline inflation rate, creating financial pressure for millions of people. In last week’s Budget, Chancellor Rachel Reeves expressed her goal to reduce the cost of living, but there were no specific measures aimed at easing the burden of grocery shopping. This has raised questions about when prices will stabilize and what the government can do to help.
Food Prices Outpace Headline Inflation
According to the Office for National Statistics, the overall inflation rate decreased to 3.6 per cent in October. While most categories saw a decline, food and non-alcoholic beverages increased by four percentage points, rising from 4.5 per cent to 4.9 per cent. This was primarily due to small increases in five of the 11 product classes, including bread and cereals; meat; fish; vegetables; and sugar, jam, honey, syrup, and confectionery.
The British Retail Consortium reported that food prices fell by 4 percentage points in November, although this was from an already high base. Food prices dropped to 3 per cent in March 2025, not far from the overall reading of 2.5 per cent, before climbing to 4.4 per cent in May. By August, grocery inflation had reached 5.9 per cent.
James Walton, chief economist at charity IGD Grocery, explains that the high prices are driven by supply and demand imbalances. “There’s a shortfall of energy and ingredients we need,” he said. “Basic food commodities such as olive oil, cocoa, coffee, tea, beef, and lamb have seen lasting price spikes due to supply shortages.”
Energy costs have also played a significant role in driving up prices. Unlike households, businesses do not have a price cap, meaning their costs can be unlimited. Tom Bradshaw, president of the National Farmers’ Union, noted that energy costs, particularly standing charges, have been a major challenge for businesses.
High Minimum Wage Could 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 mentioned an agri-food deal with the EU that could save food businesses up to £200 per shipment when trading fresh food, potentially helping to reduce prices. However, other measures in the Budget may inadvertently fuel inflation.
An increase in the minimum wage above the inflation rate has been highlighted as a potential issue. Clive Black, an analyst at Shore Capital, believes the 4.1 per cent increase in the minimum wage will likely keep CPI inflation elevated, particularly for food prices. The NFU argues that this will add pressure on prices, as farmers cannot absorb any more costs.
These higher wage costs come on top of changes introduced in last year’s Budget, including an increase in employer National Insurance contributions. Walton explained that profit margins are generally low, so any additional costs must be passed on to consumers quickly. He estimates that the increase in the national wage will add £2 billion in supply costs, which will have to be passed on to shoppers.
There’s More Pain to Come in 2026
The effects of previous policy decisions are starting to impact prices. One such policy is the Extended Producer Responsibility, which makes businesses responsible for managing and recycling their products after use. Last year’s Budget will also have a long-term effect on farmers and, consequently, consumers.
One of the most significant changes was the adjustment to agricultural business relief, which slashes farmers’ inheritance tax allowance to £1 million. This has sparked protests from farmers. Tom Bradshaw, president of the National Farmers’ Union, stated, “There’s a general malaise of regulation which is increasing the cost burden on business.”
George Hughes-Davies, founder of juice company Daily Dose, added, “Reeves is essentially going to destroy food security and food prices in the UK as this generation of farmers dies out.”
Walton noted that while government policies contribute to food price pressures, the bulk of inflation next year will be driven by market factors such as energy, basic food ingredients, and packaging.
When Will Food Prices Come Down?
Forecasts suggest that the outlook for grocery inflation in the short term is bleak and will remain ahead of CPI for some time. Pantheon Macroeconomics expects food prices to rise to 5.5 per cent in December before falling to 4.4 per cent in January. It does not anticipate grocery inflation reaching the Bank of England’s 2 per cent target until January 2027.
Even as food inflation declines, prices will continue to rise, albeit at a more manageable rate. Walton explained, “Food and drink will continue to become more expensive relative to other things shoppers have to buy.”
Supermarkets are expected to compete for customer loyalty through discounts, but with flat food volumes, they face a vicious cycle where they cannot invest in food security. Walton added, “Increased taxation will slow volume growth, leading to less investment for the future resilience of the food system.”
He emphasized that maximizing local production is the most effective way to manage food prices. Currently, 40 per cent of food is imported, and much of it could be grown in the UK. Targeted policy changes could unlock opportunities for growth, especially in horticulture and poultry.
