GD’s (Institute of Grocery Distribution) latest Viewpoint Quarterly report: ‘Inflation persists as risks grow’, summarises that 2026 has begun with heightened uncertainty for the food and drink industry, as inflationary pressures persist and geopolitical tensions escalate.
The report highlights a fragile economic outlook, with recent hopes of stabilisation undermined by renewed global disruption, including US action in Venezuela and increasing geopolitical unease surrounding Greenland and NATO. IGD warns that this instability is adding fresh layers of complexity for the food system, impacting both business decision making and consumer confidence.
Five key findings for food and drink businesses to be aware of:
Geopolitical turbulence
The report finds that geopolitical unpredictability has become the norm. IGD urges food and drink businesses to review their supply chain vulnerability and, where possible, look for ways to re-shore or near-shore supply.
Low growth outlook
Real GDP growth for 2025 is likely to be 1.2% to 1.5%, with little improvement in 2026. This represents subdued performance by historical standards.A focus on driving ‘Good growth’ within the food system will be key for food businesses.
Persistent inflation
IGD expects that food and drink inflation will only ease slowly, averaging 3.8% over 2026, compared to 4.2% for 2025. The differential between food and overall inflation will therefore persist.In a price-led market where volumes are not improving, the only way for businesses to grow will be to take share from a rival, so loyalty will be a key measure.
Consumers tightening budgets
Thirty percent of shoppers plan to cut grocery spending and 42% expect to cut back on eating out spend in the next few months. Intentions do not always translate into actual behaviour, especially if economic conditions deteriorate. IGD cautions businesses to watch for early warning signs and act promptly.
Labour shortages and the future workforce
Labour supply challenges continue across the food system. IGD notes that transforming supply chains will also require reshaping the workforce and attracting new skills. Watch out for IGD future workforce initiatives to follow later this year.
Commenting on the findings of the report, James Walton, IGD chief economist, said: “The UK food system has faced ongoing disruptions, from geopolitical turbulence to a stagnant UK economy and nearly two decades of flat household prosperity. Despite this, the industry still has significant potential, provided it is futureproofed. Food and drink businesses cannot wait; they need to move faster to build the future they want.”
