UK food inflation is expected to approach 4 per cent by Christmas before reaching 6.4 per cent next July, as geopolitical tensions, extreme weather and rising production costs put renewed pressure on supermarket prices.
The Food and Drink Federation, which represents about 12,000 food and drink manufacturers, said inflation was likely to remain significantly above historical averages through the second half of next year, despite cutting its previous forecast for year-end inflation from 9 per cent to almost 4 per cent.
The industry group estimates that a £100 grocery shop in January 2020 would cost £138.60 today, based on the latest Office for National Statistics data. By July next year, it forecasts that the same basket could cost another £8.90, taking the total to £147.50.
The FDF said “disruption is the new normal”, driven by geopolitical volatility, climate change and a “pile up” of regulatory costs associated with packaging and recycling reforms.
It has called on the government to reduce pressure on manufacturers by tackling rising energy and regulatory costs, warning that “resilience is wearing thin”.
Gas prices have more than doubled since February, according to the FDF, while UK electricity prices remain among the highest in Europe. Diesel prices have also increased by 28.6 per cent since the start of the conflict in the Middle East.
At the same time, extreme weather has pushed up the cost of key agricultural commodities. Wheat prices have risen 45 per cent, cocoa by more than 100 per cent, rice by 60 per cent, sugar by 27 per cent and coffee by 22 per cent.
Drought across the UK and Europe this summer has added to supply pressures, with manufacturers expected to face higher costs for fruit, vegetables and grains in the months ahead.
Karen Betts, FDF chief executive, said manufacturers had absorbed as much of the increase in production costs as possible but could not continue indefinitely.
“Food and drink manufacturers have kept food prices as low as possible during the energy shock since the closure of the Strait of Hormuz but they can’t do this indefinitely.
“The persistently higher costs of energy, logistics and packaging, compounded by this summer’s extreme heat mean that food prices will rise this year, and we believe that rise will be sustained into 2027.
“As the Prime Minister has recognised, households need some breathing space. Tackling the rising costs of food production will help with the cost of living, as well as giving businesses the confidence they need to invest in a resilient food system.”
The warning comes after the National Audit Office said the government needed to work more closely with households, communities and industry to make the food supply chain more resilient to increasingly severe shocks, including extreme weather, cyber attacks and disease outbreaks.
Environment Secretary Dame Angela Eagle has also urged households to prepare for extreme weather, telling the Guardian that El Niño would bring “more extreme storms in this country”.
The government said it was working to strengthen the resilience of Britain’s food supply.
A Defra spokeswoman said: “The Prime Minister has made clear that food security is national security and we are working with farmers and the food and drink industry to strengthen the UK’s resilience.
“We know that many households are still feeling pressure from the cost of living which is why we are taking a range of actions to keep prices down, including suspending import tariffs on everyday goods and supporting farmers hit by the recent drought.”
The latest forecast points to a difficult trade-off for policymakers: efforts to strengthen domestic food security and absorb supply shocks are becoming increasingly costly, while higher energy, transport and agricultural costs threaten to keep supermarket inflation elevated well into 2027.
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