Food prices are expected to increase by around 10% this year, according to industry leaders, even if the ongoing conflict in the Middle East is resolved soon. The Food and Drink Federation, representing 12,000 manufacturers, has raised its forecast for food and drink price hikes from 3.2% to a range between 9% and 10%.
This projection is based on the assumption that the Strait of Hormuz will reopen within three weeks and that energy production in the Middle East will return to normal within a year. The Federation has made significant adjustments to its previous forecasts due to the closure of the Strait and the disruption to energy infrastructure in the region following the conflict between the US, Israel, and Iran that began in late February.
The increase in Brent crude oil and natural gas prices, reaching levels not seen since 2022, has led to disruptions in oil and gas markets. This, in turn, is directly impacting production costs for UK food and drink manufacturers, given the energy-intensive nature of the industry.
While larger businesses can mitigate costs by locking in energy contracts, smaller producers purchasing energy on short notice are already facing higher prices. Dr. Liliana Danila, the FDF’s chief economist, highlighted the mounting energy bills, rising transport and packaging costs, and supply chain disruptions faced by manufacturers.
The current situation, according to Dr. Danila, presents unprecedented challenges for the food and drink sector, with increasing costs expected to lead to food inflation in the coming months. Analysts like Chris Jaccarini warn of the potential for food inflation to reach double digits, emphasizing the impact of geopolitical events on consumer expenses.
As the global situation remains uncertain, concerns about rising food prices are compounded by factors such as energy costs, transport expenses, and climate-related risks affecting food production. The combination of conflict and climate challenges is anticipated to make 2026 another year where food affordability remains a pressing issue for many families worldwide.