‘Unprecedented’ – Food inflation to soar to 9 per cent by end of year
Food inflation will soar from three to nine per cent by the end of this year due to the “unprecedented” energy and supply chain shocks caused by the Iran war, a leading association has warned.
The rate of food price growth is currently at 3.3 per cent but will climb to nine per cent by the end of 2026, according to the Food and Drink Federation (FDF), which represents the UK’s 12,000 food and drink manufacturers.
Food retailers had been bracing for potential price increases due to the Iran war but the FDF’s intervention comes after the boss of Sainsbury’s sought to soothe concerns, insisting price rises would only come in the summer.
The FDF has upgraded its food inflation forecast from 3.2 per cent – predicted in September last year – to between 9 and 10 per cent.
This signals the worst shock to food prices since the energy crisis in 2022, when food and non-alcoholic drink inflation rose by 16.9 per cent over the year.
This comes after the OECD predicted overall UK inflation would jump to at least 4 per cent in 2026.
The FDF forecast is based on the assumption that the Strait of Hormuz, the crucial shipping passage which has been blocked during the conflict, reopens within two to three weeks.
This suggests food inflation could soar even higher if disruption continues.
Food inflation could triple
Food and drink manufacturing is particularly vulnerable to the supply chain and fuel price shocks because it is one of the UK’s most energy intensive and dependent on imports, the FDF said.
Large manufacturers have fixed-price energy contracts but are bracing for their bills to go up when they come in for renewal.
Smaller food and drink producers are more likely to buy energy “on the spot” and so are facing the brunt of already-rising energy costs, the FDF said.
As well as facing higher shipping costs on imports, the food and drink industry is suffering from lost export sales.
British exporters of products which are popular in the Middle East – like cereals, chocolate, cheese and biscuits – have had shipments paused and even cancelled due to the conflict, the trade association said.
The cost of red diesel, which is used to power farm machinery, has surged by 80 per cent since the start of the conflict.
Food producers among most vulnerable to Iran war
Dr Liliana Danila, Chief Economist, The Food and Drink Federation (FDF), said: “The food and drink sector is already feeling the force of this geopolitical shock.
“As one of the UK’s energy intensive industries, manufacturers are facing mounting energy bills, rising transport and packaging costs and disruption across key supply chains.
“The current situation is unprecedented and hard to predict, however given the scale and speed of these cost increases, and despite companies’ best efforts not to pass price increases on, it’s clear that food inflation is going to rise in the months ahead.”
Some of the UK’s leading supermarket bosses are meeting Chancellor Rachel Reeves today to discuss rising prices as a result of the Iran war.
The meeting was initially planned for last week but was cancelled at last minute after only one supermarket executive said they would attend, around concerns the Chancellor would lecture grocers on “profiteering”.
The bosses of Sainsbury’s and Tesco, and an Iceland executive, will meet Reeves, while other leading grocers will not be represented.
Last week, Asda boss Allan Leighton called on the government to “start doing stuff” to help farmers and cut the price of fuel.