The Bank of England (BoE) reduced the UK base rate to 4%, while stating in its Monetary Policy Report that the 2025 inflation increase was a result of higher food and energy prices.

Consumer Price Inflation (CPI) was 3.6% in June, 0.2% higher than expected in the May Report. The Bank of England said this was mainly reflecting “unexpected strength” in food prices, with CPI inflation now projected to peak at 4% in September before falling back to 3.6% by the end of the year.

Food consumer price inflation rose to 4.5% in June, which BoE said was “materially higher” than expected at the time of the May report. It highlighted that while food price inflation remained much lower than the double-digit rates seen in 2022 and 2023, it was well above its pre-Covid average of around 1.5%.

The report detailed how food accounts for about 11% of the overall consumption basket of UK households, and said there is evidence that food prices can have an outsized effect on households’ inflation perceptions and expectations (Anesti et al (2025) and Bonciani et al (2024)).

Agriculture prices push up food inflation

According to BoE, some UK agricultural commodity prices increased sharply in 2025, pushing up food price inflation. It highlighted price increases in beef and dairy products, as well as coffee beans and cocoa, while prices for sugar and olive oil were down.

The pace of wholesale price increases has slowed in recent months, BoE stated, which it said is expected to reduce pressures on retail food price inflation in 2026 if sustained.

Labour costs contribute to price rises

In addition to global agricultural commodity prices, domestic labour costs were also an “important driver of food price inflation”, as increases in labour costs were likely to have pushed up food prices. The report stated that labour costs are expected to continue to push up food prices in the second half of the year, although firms “may not achieve full pass-through”.

BoE reported that it expects food price inflation to rise to around 5.5% by the end of the year, before falling back in 2026 as pressures from labour cost increases “fade” and global wholesale food price inflation returns to historical averages.

“Food prices have already been climbing steadily, and the BRC has warned this is only the beginning.”

Responding to the Bank of England’s comments on food inflation, Helen Dickinson, chief executive at the British Retail Consortium, said: “The Bank of England report outlines how the last Budget continues to push up food prices. Government policy will add £7 billion to retailer costs this year, from higher employment costs to the introduction of a new packaging tax.

“Food prices have already been climbing steadily, and the BRC has warned this is only the beginning. If the Autumn Budget once again lands on the shoulders of retailers, then it will only serve to fan the flames of food inflation – with poorer families being hit the hardest by the Treasury’s decisions.

“While retailers are doing everything they can to shield their customers from rising prices, their ability to absorb further costs is extremely limited. If Government goes ahead with its planned higher business rates threshold for 4,000 larger stores – including many supermarkets – then it will be ordinary households who suffer the most.”

Karen Betts, chief executive of the Food and Drink Federation (FDF), said: “Food and drink inflation is rising noticeably again and currently this shows no signs of easing. Global energy and commodity prices are rising once more, and this comes on top of new taxes and regulatory costs, like higher employer National Insurance Contributions and this year’s new packaging tax. Food and drink manufacturers try to absorb as many of these costs as possible to protect shoppers, but the fact is that making food and drink in the UK is more and more expensive to do.

“It’s critical that Government takes decisive action to cut red tape and promote growth and investment across the food and drink sector, including ensuring there are no further cost increases to businesses in our sector in the autumn Budget.”