The Food and Drink Federation (FDF) has upgraded its food and drink inflation forecast – with a new projection that warns of rates hitting 5.7% by December amid a struggle from food manufacturers to shoulder the financial burden of economic policy from 11 Downing Street.

And echoing the trade body's concerns, the UK boss of Aldi has publically flagged the likelihood of steeper prices for shoppers in the runup to Christmas should Chancellor Rachel Reeves make any new moves to squeeze the sector more.

Aldi, now 35 years old in the UK and recognised by Which?? as the nation's cheapest supermarket, delivered annual results today which showed profits tumbled by more than £100m in its latest financial year despite the tills taking a record £18bn.

Giles Hurley, Aldi UK CEO, said pressure from employers National Insurance rises last year and the cost of new packaging had already "rippled through to prices on the shelf edge" across the sector, and told the BBC: "Any policies which affect the operating costs of business should be considered very, very carefully because of the very real risk they find their way... back into the food system and onto prices."

Presenting the food giant's UK results, Mr Hurley added that shoppers were finding things difficult and that the chain was remaining "laser focused on doing what Aldi does best – offering customers great quality products at unbeatable prices".

Between January 2020 and July this year, FDF metrics, released today, suggests food and non-alcoholic drink prices rose 37%, compared with 28% for overall UK prices.

But milk, cheese, eggs and oils saw the steepest increases: whole milk climbed 46% in the same period, cheese hit a ripe 31% more and sugar reached a bitter-tasting 56% against 2020's data. Underpinning rising bread prices, flour went up by almost a fifth, at 19%.

A spokesperson for the FDF said: "With commodity and energy prices stabilising, but inflation still on the rise, government has an opportunity to curb this trend by relieving cost pressures on businesses.

"Initially this trend has been driven by surging production costs. Over the first three years of this decade, agricultural commodity prices rose by 51%, while UK gas prices quadrupled," they said.

However, despite most of these costs stabilising in 2024, food and drink inflation has persisted at well above the average rate through 2025: "The rate of rising food prices in the UK has also outpaced other European countries. By July, UK food inflation stood at 4.9%, far higher than in France (1.8%), Germany (2.7%), or Spain (2.8%)."

The disparity confirms, the FDF said, that a key driver of food inflation in the UK is the cost of government regulation and policy decisions: "This includes changes to employer National Insurance Contributions, costing the food and drink sector £410m a year, and £1.1bn for the new packaging tax, Extended Producer Responsibility (EPR)."

Dr Liliana Danila, Lead Economist, The Food and Drink Federation said: "Food and drink inflation has been climbing steadily all year, with no sign of easing. Looking at the longer-term picture, today's prices are steeper than anything in recent decades. The five-year average is running at more than double the rate seen between 1990-2010."

Inflationary spikes between 2020 and 2023 were driven by geopolitical shocks, she said, which created supply chain disruptions and sharp rises in energy and raw ingredients: "With most of these costs now stabilised, this new inflation surge is fuelled by the financial impact of domestic policies, now trickling down to supermarket shelves."

The FDF maintains that food manufacturers have in recent years absorbed rising costs to ease the pressure on shoppers at the tills, citing how average production costs increased 6.3% last year, at well above the rate of inflation. However, having faced such a long period of cost pressures, price rises, it warns, must eventually make their way to supermarket shelves.

Karen Betts, Chief Executive, The Food and Drink Federation, added that UK food price inflation is now an outlier against comparable European economies and would persist in the absence of energy or commodity shocks.

She said: "As this Autumn's Budget looms, it's critical that government does not add further to the already high costs of regulation in our sector. We've been hit by rising taxes, employment costs, and a new packaging tax. We're calling on government to help us turn this tide by partnering with industry to attract investment, accelerate productivity growth, boost skills, and grow exports across our sector. This will help counter inflation and secure a more resilient future for UK food and drink manufacturing."

Food and drink manufacturing has a £14bn growth opportunity that could be unlocked with policies to incentivise investment in the sector, the FDF said. This could include supporting more automation and tech adoption alongside, the transition to a higher skilled workforce by delivering on the flexibility promised in the Growth and Skills Levy.

Additionally, she said, the government must bear down on existing cost pressures.

"For example, the £1.1bn fees for the EPR scheme must be used to boost recycling rates, so that producers aren't hit with higher bills in coming years. This could also include not increasing the current rates that industry pays on taxes such as the Soft Drinks Industry Levy."

With 42% of the food we eat imported, ensuring that the food and drink industry's interests are represented as negotiations for a renewed trade agreement with the EU progress will help to slow rising costs in coming years, the FDF said: "Whilst the negotiations continue, it's also important that there's consistency at borders so no further unnecessary burdens are put on businesses."

● Today's inflation warning on food costs resonate with Punchline-Gloucester.com's report last month, with a warning from the British Chambers of Commerce that inflation remains "a real concern for over half of SMEs".