UK Set For Highest Inflation In G7 As Food Costs Continue To Bite

The UK is on track to record the highest rate of inflation among the G7 advanced economies this year, according to the Organisation for Economic Co-operation and Development (OECD).

In its latest forecast, the OECD raised its prediction for UK inflation to 3.5% in 2025, up from its earlier estimate of 3.1%. The report pointed to higher food costs as a key driver. While inflation is expected to ease to 2.7% in 2026, that figure would still be the second highest in the G7.

The Paris-based policy group also nudged up its growth forecast for 2025 slightly, to 1.4%, but warned that the economy will slow to 1% in 2026. The slowdown, it said, reflects a “tighter fiscal stance” – either through higher taxes or lower government spending – alongside increased trade costs and ongoing uncertainty.

The findings land just weeks before Chancellor Rachel Reeves delivers her first Budget in November. Reeves has pledged to stick to strict borrowing rules, a stance that analysts say could require raising £20bn–£30bn through tax increases or spending cuts.

Responding to the OECD’s forecast, Reeves said the figures “confirm that the British economy is stronger than forecast – it has been the fastest growing of any G7 economy in the first half of the year”. But she added: “I know there is more to do to build an economy that works for working people – and rewards working people.”

The Opposition seized on the report. Shadow Chancellor Sir Mel Stride said it confirmed “what hard-working families already feel – under Labour, Britain is in a high tax, high inflation, low growth doom loop. The UK is now teetering on the edge of stagflation, all driven by Labour’s economic mismanagement.”

Speculation about tax rises has been mounting. This week, the Resolution Foundation suggested cutting 2p from employee National Insurance while raising income tax by the same amount, a switch it said would raise £6bn. However, Labour has pledged not to increase income tax, VAT or National Insurance on “working people”.

Food And Fresh Produce Under Pressure

The OECD’s warning follows the latest official figures showing UK inflation stood at 3.8% in August, fuelled largely by higher food prices. Businesses in the food and fresh produce sectors have highlighted the dual pressure of rising employer National Insurance contributions and a higher minimum wage – costs that many say are being passed straight through the supply chain to consumers.

For growers, distributors and retailers, this inflationary environment adds further strain. With energy, fertiliser and logistics costs already elevated, producers are warning that margins are becoming unsustainable. Retailers meanwhile face the difficult task of keeping fresh produce affordable for shoppers while honouring their commitments to UK suppliers.

The Bank of England, which targets a 2% inflation rate, has warned that inflation could peak at 4% before easing back. Rates were left unchanged last week, with policymakers cautioning that the UK is not “out of the woods yet”.

The fresh produce industry will now be watching closely as Reeves prepares her Budget, hoping that any measures designed to stabilise the wider economy will also provide much-needed relief to businesses at the heart of Britain’s food supply chain.

Source: BBC News