Food inflation set to surge next year as Iran war ramps up supply costs
Food inflation could top six per cent next year as rising fuel prices triggered by the war in Iran ramp up supply chain costs, a top food industry body has warned.
The Food and Drink Federation (FDF), which represents the UK’s food manufacturers, has urged the government to help the industry keep its costs down, warning that soaring food inflation could jeopardise food security.
Food inflation is set to reach four per cent by December and hit a peak of 6.4 per cent in July next year, the group has forecast, as the supply chain costs caused by the Iran feed through into prices.
The FDF says that this rate of inflation could be slowed if the government cuts the costs of regulation like the renewable packaging levy, a levy on soft drinks and new rules around the promotion of less healthy foods.
The food manufacturing industry took a £2bn hit from these regulations – plus the hike to employer national insurance contributions and another plastic packaging tax – in 2025 alone.
Karen Betts, chief executive of the federation, warned the government’s failure to slow this “tsunami of legislation” will cause manufacturers to slow their investment in new supply chains and factories in the UK.
She said: “We’ve seen it in response to the last three budgets, where there’s been so much speculation about possible tax rises that [manufacturers] have deferred making decisions until they’re clear what the tax position will be.
“What worries us with all these inflationary pressures, all this regulatory uncertainty is [that] those investment decisions are not being made. And in the end, a lack of processing and manufacturing capability in the UK will undermine food security.”
The FDF said the government’s plans to re-align its food safety standards with those of the European Union is also causing concern for manufacturers because the government is “underestimating” the cost and complexity involved.
Manufacturers ‘need breathing space too’
The trade body also pointed to rising wage costs as a driver of food inflation, pointing out that growth of the national minimum wage has consistently outpaced average wage inflation in recent years.
Betts called for “joined-up” thinking from Whitehall. “One hand doesn’t always know what the other is doing,” she said.
The FDF had previously warned that food inflation could surge to nine or ten per cent by the end of this year.
But the trade body said it has softened its inflation forecast because manufacturers have signed up to longer fixed-price contracts for their resources and energy since the inflation boom caused by Russia’s invasion of Ukraine.
Food prices have risen by nearly 40 per cent since 2020, the FDF said, meaning that a £100 weekly shop at the start of the decade would cost nearly £140 today and will approach £150 next summer.
“As the Prime Minister has recognised, households need some breathing space. Tackling the rising costs of food production will help with the cost of living, as well as giving businesses the confidence they need to invest in a resilient food system,” Betts said.
A spokesperson for the Department of Environment, Food and Rural Affairs said: “The Prime Minister has made clear that food security is national security and we are working with farmers and the food and drink industry to strengthen the UK’s resilience.
“We know that many households are still feeling pressure from the cost of living which is why we are taking a range of actions to keep prices down, including suspending import tariffs on everyday goods and supporting farmers hit by the recent drought.”