British government policies, rather than traditional market forces, will emerge as the primary driver of food inflation throughout 2025, according to leading City analysts at Shore Capital.
The investment firm’s research suggests that recent tax increases, minimum wage adjustments, and the existing business rates framework are poised to intensify cost pressures across the UK grocery sector. The most significant impact stems from the April increase in employers’ national insurance contributions, rising to 15 per cent from 13.8 per cent, which could result in substantial cost implications for major retailers.
Tesco, Britain’s largest supermarket chain, faces a potential £250 million surge in costs due to these policy changes. The implementation of a 6.7 per cent minimum wage increase in April, combined with ongoing post-Brexit trade complications between the UK and European Union, is likely to prompt grocers to pursue price increases as a means of cost recovery.
The previous inflation crisis of 2022-2023, which saw food inflation peak at 19.3 per cent in March 2023, was primarily attributed to escalating food and energy costs. While these pressures have notably subsided over the past year, helping to reduce consumer price inflation to single digits, the Office for National Statistics reported an uptick in November, with inflation rising to 2.6 per cent from 2.3 per cent.
Shore Capital warns that renewed food inflation could potentially hamper the Bank of England’s plans to reduce interest rates. Market observers currently anticipate two to three rate cuts in 2025 from the current 4.75 per cent level. The analysts concluded their assessment with a pointed message: “When asked in 2025 why food prices are rising, send the postcard to 11 Downing Street.”
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