Inflation in the UK has begun to tick upwards once more as the impact of the conflict in the Middle East started to filter through to energy bills, but food prices have yet to be affected, according to the latest government data.
Consumer price inflation increased 2.9% in the year to July 2026, up from 2.6% in the previous month, the Office for National Statistics reported this morning. It followed an easing down from 2.8% in May.
The jump followed a sharp rise in household gas and electricity bills as the war in Iran caused chaos in world energy markets.
However, food prices rose more slowly in July, with inflation in the industry down from 1.7% to 1.3% as the cost of beef and breaded chicken came down. It is the lowest level for food inflation in two years.
Prices at supermarkets are expected to begin to climb towards the end of the year as higher costs for suppliers filter through to shelves and the impact of droughts and heatwaves on crops begin to be felt.
“Last month, inflation rose for the first time since March, in large part due to the lifting of the energy price cap,” said Harvir Dhillon, lead economist at the British Retail Consortium.
“But there was some good news for consumers as food inflation slowed, with prices for pasta, olive oil and fresh fruit all falling on the month, demonstrating that strong competition among grocers is firmly keeping a lid on people’s weekly shop, despite successive supply chain shocks. By discounting everyday essentials and delivering value, retailers are actively shielding consumers from the inflationary headwinds sweeping through the economy.”
Dr Liliana Danila, chief economist at the Food & Drink Federation (FDF), added it was “good news for consumers” as food inflation continued to fall for another month in July.
“This isn’t what we’d historically expect to see following a supply chain shock like the war in Iran,” she said. “This is partly due to the time it takes for these shocks to pass through to consumer prices, and partly due to the fact that food manufacturers have learnt from the previous energy shock brought on by the war in Ukraine, adapting contracts and diversifying suppliers to keep costs down.
“But supply chain disruption isn’t going away. Alongside geopolitical volatility, extreme weather will continue to put pressure on the price of key ingredients. This makes it increasingly difficult for food manufacturers to shield consumers from price rises and protect their own resilience. It will be very challenging for manufacturers to swallow any higher costs that come as a result of the extremely hot and dry weather we’ve had across Europe this summer.
“The government should prioritise the sector’s resilience – helping businesses to invest in technology, skills for the future and decarbonisation – so that we continue to have a dynamic and affordable food system for years to come.”
Dhillon added that keeping inflation under control must be an urgent priority for the government.
“Retailers have competed fiercely and managed to keep the cost of food and essentials down for shoppers, but the rising cost of government policies puts this in jeopardy.
“The upcoming budget is a crucial test. If ministers can reduce the cost of doing business by slashing standing charges on energy bills, cutting the cost of employment and rebalancing the business rates burden away from retail, those savings can be passed directly to customers at the checkout, keeping inflation at bay for households continuing to face rising bills.”
IGD chief economist James Walton said: “The drop in food inflation may reflect a combination of retailers absorbing costs to protect shoppers from further price increases and plentiful food supply at the start of the year providing a temporary cushion.
“However, the wider industry backdrop remains challenging, with energy markets disrupted by the Middle East conflict, rising regulatory costs, extreme weather affecting food production and higher farm input costs which have not yet fully fed through the supply chain. These pressures suggest food inflation will rise in the coming months as their impact filters through and businesses should continue to monitor this closely.”
No comments yet