UK food inflation ‘could hit 9% this year’ as Iran war drives up energy prices

Food and Drink Federation almost triples forecast, even allowing for possibility of strait of Hormuz reopening soon

Food inflation could hit 9% in the UK this year, even if the strait of Hormuz opens within the next few weeks, figures suggest, as the Iran war pushes up energy prices.

The Food and Drink Federation, which represents 12,000 food and drink manufacturers, has predicted prices will rise by “at least” 9% by the end of 2026, almost tripling a forecast of 3.2% that was made before the Middle East conflict.

Dr Liliana Danila, the chief economist at the FDF, said the industry was already facing big rises in energy, transport and packaging costs, as well as disruptions across its supply chains.

“The current situation is unprecedented and hard to predict,” she said. “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.”

The 9% forecast assumes that the strait of Hormuz, a key shipping channel, will reopen to cargo traffic within the next two to three weeks, and the majority of large energy facilities, such as oil, gas and fertiliser sites, return to normal within a year.

The chancellor, Rachel Reeves, is preparing to meet the bosses of the UK’s biggest supermarkets on Wednesday afternoon.

The bosses of Sainsbury’s, Tesco and Morrisons are among the executives expected to attend the discussions about the potential impact on the cost of living and possible supply squeezes triggered by the conflict in the Middle East.

The food company Princes has raised its prices on all of its products in response to “unprecedented cost pressures” stemming from the war.

The company, which makes tinned tuna under the Princes brand, as well as Napolina pasta and Crosse & Blackwell soups, wrote a letter to its European customers telling them the 5% price hike was because of soaring costs, the Grocer reported. It is understood that negotiations are continuing with UK retailers about future price increases.

UK farmers and producers have said that without government help with surging energy bills there could be shortages of domestic tomatoes, cucumbers, peppers and aubergines.

Growers’ representatives have said that without support from ministers, or the retailers they supply, fresh produce businesses could go bust later this year as higher costs bite.

Simon Conway, the chair of the British Tomato Growers’ Association (BGTA) said: “Growers only historically only make money in the last few weeks of the season, as margins are so tiny in this sector. No one can absorb these kind of cost shocks, they have to be worked through with retailers.”

Many businesses, which typically fix their energy contracts from April, will be hit by a sharp rise in costs from Wednesday amid increases in standing charges, the fixed daily cost added to bills for accessing the UK’s gas and electricity network.

The BTGA and other food producers are campaigning to be classed as “energy intensive users” by the government, a classification that would help to reduce their bills. If there is no support, “businesses will fail”, said Conway.

Energy bills are just one extra cost facing food producers, along with higher prices for packaging and the fuel needed to transport goods to retailers.

The effect of a string of cost increases “hasn’t hit yet but is coming towards the end of the summer”, said Conway. He added that retailers remembered the gaps on shelves in early 2023, when there were fresh produce shortages.

Meanwhile, household energy bills are due to fall until July,but are then expected to jump. The government is coming under increasing pressure to provide support on higher energy bills, although so far it has suggested that any help would be targeted for the most vulnerable households.

In an interview with the BBC, Reeves said the government was looking at ways in which it could support people based on their household income.

However, she did not commit to cutting fuel duty or VAT on petrol, saying she had to be careful with promises to lower prices too much as it could then push up overall inflation, interest rates and taxes.