Food manufacturers sound warning bells over sector resilience, with food inflation set to reach 4% by Christmas
- The Food and Drink Federation’s latest forecast shows food inflation is expected to reach nearly 4% by Christmas, peak at 6.4% in July 2027 and be higher than historical averages throughout 2027
- This is the result of the shock of the conflict in Iran, coupled with the impacts of extreme weather on the global food supply chain
- Manufacturers have worked hard to protect consumers from the initial shock of the Iran war, however their resilience is wearing thin. With disruption the new normal, Government must take the UK’s food security seriously by relieving immediate regulatory pressure
Food and non-alcoholic drink inflation is expected to reach nearly 4% (3.9%) by December 2026, according to the latest Food Inflation Forecast from The Food and Drink Federation (FDF)1. Consumers are expected to feel the hit of the conflict in Iran and climate-related events – including El Niño and this summer’s droughts across the UK and Europe – into next summer, with inflation predicted to peak at 6.4% in July 20271. It’s then forecast to remain significantly above historical averages for the second half of 2027.
Food manufacturers have worked hard to absorb the initial shock of the Iran war and protect consumers from price rises. However, after six years of turbulence and disruption, they can’t continue to absorb such a wide range of price rises. As a result, the inflationary fallout of the Iran war is expected to be a longer plateau and will come later than previous shocks, such as the invasion of Ukraine, when food inflation peaked at over 19%2.
Food prices have risen by nearly 40% since 2020. A £100 weekly shop in 2020 would cost nearly £140 today and will approach £150 by next summer3 because of this pressure on the food system. The UK’s food and drink manufacturers are calling on government to act now to safeguard the nation’s food security and give consumers some breathing space by relieving rising energy and regulatory costs that risk pushing prices even higher.
Disruption is the new normal
The UK grocery market is extremely competitive, and British food and drink manufacturers work hard to keep prices low for consumers. However, geopolitical volatility, the impacts of climate change, and a pile-up of regulatory costs continue to bring a perfect storm of upward pressure on prices, which will eventually reach grocery bills.
FDF’s latest Food Inflation Forecast details that gas prices have more than doubled since February 20264, while UK electricity prices are some of the highest in Europe. This is concerning as energy is required at every stage of the food production process, from farms to factories. UK diesel prices have also risen more than a quarter (28.6%) since the start of the conflict in the Middle East5.
Climate related events are compounding these problems, causing the cost of many key ingredients to skyrocket. Wheat is up 45%, cocoa over 100%, rice 60%, sugar 27% and coffee 22%6, while produce grown in the UK has increased by almost 10% in the last year7. Droughts across the UK and Europe this summer have put further strain on supply, meaning manufacturers will also face higher costs for fruits, vegetables and grains in the months ahead.
Businesses across the food system are adapting their ways of working, including diversifying supply chains and hedging their contracts more, to be better able to weather disruptions. As a result, it’s likely that the change in inflationary pattern to a longer plateau is likely to be repeated for other shocks.
Taking the UK’s food security seriously
Food manufacturers are the shock absorbers of the food system, positioned between the farmers and retailers and ensuring that everyone has access to a wide range of affordable food.
However, a decade of climate and geopolitical shocks, combined with the steady build-up of complex and costly regulatory pressures, is driving up the cost of food in the shops. In 2025, FDF estimates that five government regulations alone added £2bn of costs to our sector8.
While many costs are baked-in, government can act now to keep a lid on further price rises and protect consumers from a more severe hit. For example, by offering targeted support with energy bills for the sector, which other manufacturing industries already receive. Government must also prioritise effectively implementing their current packaging and recycling reforms which are already adding billions to the cost of making food and pause their complex and unenforceable plans to change advertising and promotion rules, which would take significant resource at a time when the sector is already stretched.
Karen Betts, Chief Executive, The Food and Drink Federation (FDF), said:
“Food and drink manufacturers have kept food prices as low as possible during the energy shock since the closure of the Strait of Hormuz, including by driving new efficiencies in their operations. 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. Food manufacturing is embedded in every postcode in the UK, so ensuring our industry is fairly supported with energy costs will support growth and jobs everywhere. Ensuring regulation is proportionate and paced will drive down our rapidly rising compliance costs.
“By taking action, government can take the heat out of food inflation, help keep a lid on the cost of the weekly shop, and signal to hard-pressed food manufacturers that they take food security seriously.”
The UK’s food and drink manufacturers are responsible for ensuring the nation’s cupboards, fridges and freezers remain stocked with reasonably priced food. But they also power communities all over the country, provide lifelong careers, investment and create a strong reputation for the innovation and quality of British manufacturing globally.
Giving manufacturers some breathing room to absorb costs will allow them to make crucial investments in technology, skills and training, and innovation, so that they can continue to provide affordable food to feed the nation and bring prosperity and opportunity to the communities where they are based for years to come.
Main Image © Pixabay