The latest increase in fuel duty has been slammed as "another punch on the nose" for an industry already struggling with soaring distribution costs.

Fuel duty rose on 1 January for the third time since April 2010. Just three days later, VAT rose to 20%, sending the average cost of a litre of diesel soaring from 128.35p to 132.01p. Duty now makes up more than half the cost of a litre of diesel and industry experts warned it was going to become increasingly hard to absorb rising costs.

"We will inevitably see some of the cost passed on to retailers," warned FWD CEO James Bielby.

Retailers would in turn have to pass them on to consumers, said Mark Croxton, MD of Aldata. "Quite a bit of food inflation is caused by distribution costs," he said. "This is another trend in the same direction of distribution costs increasing as a percentage of the products we buy in supermarkets."

Manufacturers and retailers warned that margins were already being squeezed by rising costs.

"At a time when consumers are under pressure, manufacturers won't want to increase prices," said FDF director of sustainability and competitiveness Andrew Kuyk. "There comes a point when you can't absorb them and they will have to be passed on."