The ongoing conflict in the Middle East poses a severe threat to UK household budgets, with a leading trade body warning that food inflation could surge beyond 9% by the close of 2026. The Food and Drink Federation (FDF), representing approximately 12,000 food and drink manufacturers across the nation, has significantly revised its annual inflation forecast upward in response to the geopolitical turmoil.
Revised Forecast and Economic Impact
Economists at the FDF now project that food inflation will reach at least 9% by December 2026, a stark increase from the 3.2% forecast issued in September of the previous year. This dramatic shift is primarily attributed to the effective closure of the Strait of Hormuz and widespread disruption to critical energy infrastructure in the Middle East. These events have triggered a sharp escalation in Brent crude oil and natural gas prices, which have climbed to their highest levels since 2022.
Immediate Effects on Manufacturing
The FDF highlights that the turmoil in oil and gas markets is exerting a direct and immediate impact on production costs for UK food and drink manufacturers. As an energy-intensive industry, the sector relies heavily on power for manufacturing processes, making it particularly vulnerable to price spikes. While many larger companies can hedge costs by securing fixed energy contracts, they are bracing for significant price increases as these agreements expire. Conversely, smaller producers, who typically purchase energy "on the spot," are already grappling with elevated prices.
Supply Chain and Cost Pressures
Dr Liliana Danila, chief economist at the FDF, emphasised the severity of the situation, stating: "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. These pressures are hitting simultaneously, and are a significant challenge for businesses to absorb." She added that the current circumstances are unprecedented and difficult to predict, but noted that despite efforts to avoid passing on costs, food inflation is likely to rise in the coming months.
Political Response and Consumer Concerns
In light of these developments, political leaders are taking action. Sir Keir Starmer is expected to deliver an update on the cost of living crisis, addressing concerns over potential increases in energy bills resulting from the conflict. Additionally, Chancellor Rachel Reeves plans to meet with supermarket executives and regulators to discuss the broader impact on consumers and explore measures to mitigate rising prices.
The FDF's revised forecast assumes that the Strait of Hormuz will reopen to cargo traffic within the next two to three weeks and that major facilities, including oil, gas, and fertiliser sites, will resume normal operations within a year. However, the organisation cautions that the situation remains fluid and subject to rapid change, underscoring the uncertainty facing both businesses and households in the UK.
