The FDF has predicted food inflation will reach over 9% by the end of 2026, after revising its estimates.
Having previously forecast a gradual easing of food inflation to 3% by the end of the year, the FDF has now accounted for the closure of the Strait of Hormuz, and damage to oil and gas facilities in the Middle East due to the Iran war.
Noting the situation was “fast-moving”, the FDF said its new rate of inflation depended on the assumption that the Strait will reopen within two to three weeks, and the majority of key facilities, such as oil, gas and fertiliser sites, return to normal within a year.
Donald Trump told reporters late on Tuesday that the US could end its war in Iran within “two or three weeks”, with or without a deal, according to the FT. The conflict, sparked by the US bombing of Iran’s head of state, is now in its fifth week.
“As an energy-intensive industry, the current disruption to global oil and gas markets is having a direct and immediate impact on production costs for UK food and drink manufacturers,” said the FDF.
“Energy is required at every stage of the manufacturing process and while many medium and larger-sized businesses hedge fluctuations in prices with a mixture of contract lengths, they’re bracing themselves for sharp rises as contracts come up for renewal.”
Smaller companies, which are more likely to buy energy at ‘on the spot’ prices, are already experiencing a rise in costs.
Higher haulage and shipping costs have amplified these pressures, alongside delays and disruption to global shipping.
And UK exporters of products popular in the Middle East – such as cereals, chocolate, cheese and biscuits – have been forced to pause or cancel shipments.
“The food and drink sector is already feeling the force of this geopolitical shock,” said FDF chief economist Liliana Danila.
“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.
“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.”
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