Food prices have been one of the big drivers of 2025’s inflation, accounting for roughly a quarter of the rise in headline inflation this year. Looking ahead, we expect food inflation to continue to rise over the course of this year, driving headline inflation to 4% by September. With food inflation having an outsized impact on households’ inflation expectations, the Monetary Policy Committee (MPC) could find it hard to justify another rate cut in Q4.

What’s driving UK food price inflation?

Food and drink inflation rose to 4.9% in July, having risen almost 3ppts so far this year. In fact, food inflation is responsible for around 25% of the rise in UK inflation since December, adding to April’s rise from regulated price hikes.

The main reason for the sharp increase in food prices is higher global wholesale prices. These eventually find their way into consumer prices, as the chart below shows. The impact of rising wholesale prices is particularly evident in the key drivers of recent food price increases – such as for beef and cocoa – where supply constraints due to issues like poor weather conditions have been pushing up prices globally.

April’s increase in employer National Insurance Contributions (NICs) is compounding food price inflation in the headline data. Supermarkets and food manufacturers were particularly hard-hit by the rise in employment costs. Both sectors also employ many staff at the National Living Wage (NLW) and is one reason why pay growth in retail (7.8%) and food manufacturing (6.5%) is so strong. As a result, these firms have probably relied on hiking prices to protect margins. The fact that food price inflation in the UK is over 1.5ppts higher than in the US and the eurozone suggests there is more at play than just rising commodity prices.

Looking ahead, we expect food inflation to keep rising over the rest of the year for two key reasons. First, higher wholesale prices will continue to work their way through to supermarket shelves and push up prices for consumers.

Second, new environmental regulations mean firms will pay an additional levy on food packaging from October. This is likely to continue pushing up food prices in the latter half of the year.

Ultimately, we expect food inflation to peak between 5.5% and 6% at the end of the year, before falling back in 2026.

Surging food prices could force the MPC to slow interest rate cuts

Food price inflation has risen significantly faster than the MPC had anticipated and is the main reason the committee revised its inflation forecasts to peak at 4% instead of 3.7%.

Rising food prices are clearly a growing concern for the more hawkish members of the MPC. Food prices are crucial to households’ perceptions of inflation because everyone notices the rising cost of essentials in the weekly shop. Indeed, our second chart suggests that for every 1ppt food prices contribute to inflation, inflation expectations rise by almost 2ppt.

This is why the hawks on the MPC noted the “disinflationary process had slowed and the risk of inflation expectations feeding through to second-round effects had risen” in their August meeting. An example of a second-round effect is that households bargain for bigger pay rises because they feel inflation is higher and, crucially, will stay higher in the medium-term thanks to rising food prices. This can push up inflation and increase costs for firms. In turn, firms will be more aggressive in passing on big price increases to consumers.

What’s more, survey data already suggests households’ inflation expectations are well above levels consistent with 2% inflation. This gives the MPC little wiggle room if households’ perceptions of inflation continue to increase. It may then judge the risks of those second-round effects materialising to be too high.

Ultimately, food inflation will continue to rise over the rest of the year. If this further heightens inflation expectations, then the MPC is likely to choose to skip a fourth rate cut this year and instead wait until the spring.

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