UK Faces Highest G7 Inflation at 3.5% Amid Rising Food Costs

The OECD reports that the UK will experience the highest inflation rate among G7 nations in 2025, projected at 3.5%, up from 2.5% last year, driven by rising costs of basic goods and food. Inflation pressures stem from wage growth outpacing productivity, increased trade costs, and regulatory expenses such as a packaging tax, while growth forecasts remain modest at 1.4% for 2025 and 1% for 2026. The British Retail Consortium highlights consumer concerns over prices rising faster than wages, with food price inflation reaching 5.1%, exacerbated by higher labor costs and new taxes, potentially continuing through 2026. Food inflation is notably impacted by global commodity price shocks, including a surge in cocoa prices due to adverse weather and pest outbreaks in West Africa, which has led manufacturers to raise prices and reduce product sizes. These combined factors contribute to sustained cost of living challenges for UK households and increased pressure on government fiscal policy ahead of the November budget. The situation underscores the difficulty in balancing inflation control, economic growth, and consumer affordability in the current UK economic climate.