Grocery industry analyst says a difficult consumer marketplace and political changes will impact the FMCG sector
Inflation will not turn negative until at least 2028, with food and drink inflation set to hover between 0.3 and 2.3 per cent by the end of this year.
That’s according to IGD’s new Economics Viewpoint Report and food inflation forecast, which compares the food inflation projections to the current figure of 8 per cent.
With a general election looming and low household income on the rise, food and consumer goods businesses will need to move through a complex economic and political landscape while meeting the needs of shoppers, IGD observed.
As businesses will be under pressure to observe margins, the report states that living standards are expected to fall lower than pre-pandemic levels.
In fact, according to the IGD research, inflation will level off at 1-2 per cent by 2025, contributing to a cost-of-living crisis for some time.
Contrastingly, IGD’s analysts estimate that fewer shoppers will be cutting their expenditure, although it is suggested that many will be using resources to pay off debt.
James Walton, chief economist at IGD, said: “For the foreseeable future, UK output will remain flat, meaning that economic recovery from the pandemic is now in the past rather than the short to mid-term future.”
Michael Freedman, head of economic and consumer insight, added: “The recent inflation figures highlight that the cost-of-living crisis is still real for many consumers. There is a real divide between mainstream society and those on the lowest incomes. A one-size-fits-all approach to meeting customer needs will not suffice in this market.”
Policy changes on the horizon
As political parties share their plans for reforming the UK economy towards the general election, IGD says food businesses will need to keep abreast of a slew of upcoming policy changes.
Ahead of the Spring Budget, there will be a full rollout of the Target Operating Model, which will see processes at borders change and potentially slow down imports on the road.
Other new policy activities include a review of origin labelling for food and consumer goods, an update on the interoperability of the deposit return scheme, and the government’s response to the Independent Review into Labour Shortages in the Food Supply Chain.
The latter will see food and consumer goods companies focus on how they recruit and retain talent, and IGD has been charged by government to lead the industry response in that work.
As the British food and consumer goods sector strives for resilience in the run-up to an election, IGD stated: ”The Conservatives will be compelled to take action on previously stalled food security and environment policies in the event of a third term, while Labour have shared a green prosperity plan that would increase investment in businesses, alongside loosening the supply chain with improved relationships with the EU.”
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