In its latest Economic Viewpoint report ‘What to plan for in 2026’, The Institute of Grocery Distribution (IGD) warns of persistent inflation and higher taxes for the food industry in 2026.
IGD’s Economic Viewpoint report reveals the “critical risks and opportunities” for food and drink businesses in 2026, as food inflation remains persistent and uncertainty continues.
Retail food inflation is forecast to persist, only easing slightly, said IGD. At the same time, fragile shopper confidence, rising household taxes and geopolitical risks all threaten economic recovery. IGD warns that businesses must prepare for a volatile environment where affordability and selective indulgence will define consumer behaviour. It predicts policy changes that have affected the food system in 2025 are likely to accelerate in 2026.
The outlook for 2026
Key predictions in the report cover the Economic, Consumer and Government policy outlook:
Economic outlook
- Persistent food inflation: Retail food inflation expected to decline gradually (4.3% in 2025, 3.8% in 2026 and 3.3% by 2027), but geopolitical shocks could trigger fresh price spikes.
- Growth challenge: Productivity and economic growth are both expected to be lower than previous OBR forecasts in 2026.
- Margin recovery focus: Margin and volume growth will need to be priorities amid low economic growth and ongoing cost pressures.
- Supply chain risks: Continued impacts from climate change, geopolitics and other threats will influence supply chains.
Consumer outlook
- Muted confidence: 33% of shoppers plan to cut back on grocery spend in 2026, up from 28% in December 2024, reports IGD. For Away From Home, 45% of consumers plan to cut back spend in the next few months, versus 46% in December 2024.
- Taxation and inflation impact: Inflation will have the biggest impact on consumer sentiment, however, household taxation will rise further in 2026, limiting disposable income and reinforcing value-driven shopping.
Government policy outlook
- NHS and food regulation: HFSS advertising restrictions will take effect, alongside promotion and location restrictions in Scotland and Wales. Work to implement measures to tackle obesity in the NHS 10 Year Plan will commence.
- Circular economy focus: Businesses must prepare for the Deposit Return Scheme and for new policy interventions as a result of the Circular Economy Strategy.
- Workforce and migration: New obligations in the Employment Rights Bill begin to take effect, while tighter immigration rules will reduce access to labour and skills.
- Trade and compliance: UK businesses face new regulatory requirements as SPS arrangements with the EU shift, alongside new deforestation reporting requirements.
There will be some opportunities, said IGD, as despite caution, consumers will selectively trade up, especially during seasonal events such as Christmas, which will create “growth pockets” for businesses balancing value and premium.
“Businesses must stay relevant to value-conscious consumers while unlocking growth from resilient segments.”
James Walton, chief economist at IGD, commented: “2026 will be a critical year for the food and drink industry. Businesses must stay relevant to value-conscious consumers while unlocking growth from resilient segments. Those able to deliver affordability alongside moments of indulgence will be best placed to succeed.”
IGD expects Government will accelerate policies and regulatory changes shaping food policy and stated that next year is likely to bring a push to implement key measures before the next General Election, with food policy influenced by both Government priorities and external pressures.
