UK food inflation heading towards 10% due to Iran war, industry says

UK’s food prices will be ​rising by almost 10% by the end of this year due to ‌the Iran war, the country’s food and drink manufacturers’ lobby warned on Wednesday, around three times faster than its previous forecast.

The Food and Drink Federation (FDF) said food and non-alcoholic drink inflation, previously expected to ​ease to 3.2% by December 2026, would now climb above 9% by that ​date.

The FDF, which represents about 12,000 UK food and drink manufacturers, ⁠said its forecast assumed Iran’s vital Strait of Hormuz shipping route would reopen to ​cargo traffic within two to three weeks and that most key facilities, including oil, gas ​and fertiliser sites, would return to normal within a year.

It suggested that food inflation could rise even further if disruption lasted longer or energy supplies were more severely affected – highlighting the economic risks ​from the conflict that are prompting central banks to abandon rate cuts and governments to ​consider ways to help businesses and consumers.

The FDF said the industry was unusually exposed to oil and ‌gas ⁠market shocks because of its high energy use and reliance on complex global supply chains.

While many medium-sized and larger companies hedge energy price movements through a mix of contract lengths, the FDF said they were bracing for sharp increases as contracts come up for ​renewal. Smaller producers, which ​typically buy energy ⁠on spot markets, are already experiencing cost spikes.

“Despite companies’ best efforts not to pass price increases on, it’s clear that food inflation ​is going to rise in the months ahead,” Liliana Danila, ​FDF chief ⁠economist, said.

The first clear impact of the war on UK household costs has been seen at fuel pumps, where higher energy prices have already pushed up costs for drivers.

Farmers have also warned ⁠of ​higher food prices from next month, starting with tomatoes, ​cucumbers and peppers grown in heated greenhouses.

UK grocery inflation held at 4.3% in the four weeks to March 22, ​research firm Worldpanel by Numerator reported on Tuesday.