FDF Updates Food Inflation Forecast to 9% by End of 2026

The Food and Drink Federation (FDF), representing the UK’s 12,000 food and drink manufacturers, has revised its food inflation forecast due to recent geopolitical developments. Initially, FDF anticipated a gradual decrease in food inflation to about 3% by the end of 2026. However, due to escalating tensions affecting oil and gas production in the Middle East, the forecast for food inflation has been updated to at least 9% by the end of this year.

Current Context

• FDF’s new forecast indicates a significant increase in food inflation, projecting it to exceed 9% by the end of the year.
• This prediction is subject to rapid changes, relying on assumptions that the Strait of Hormuz will reopen in the next 2-3 weeks and that energy production across the Middle East will normalize within a year.
• The food and drink manufacturing sector, being energy-intensive and globally interconnected, finds itself uniquely vulnerable to these fluctuations, facing multiple cost pressures simultaneously.

Key Influences on Inflation

The current disruptions in global oil and gas markets are directly affecting production costs for UK food and drink manufacturers. As energy is fundamental throughout the manufacturing process, manufacturers, especially medium to large businesses, are preparing for sharp increases in energy prices as contracts come up for renewal. Smaller producers, reliant on spot prices, are already feeling the financial strain.

Moreover, rising transportation costs, elevated by higher oil prices, and ongoing global shipping delays are exacerbating these pressures. UK exporters of goods traditionally popular in the Middle East, such as cereals, chocolates, and cheeses, have had to halt shipments, creating additional uncertainty for manufacturers.

Impact on Agriculture

The agricultural sector, being the initial link in the supply chain, is also affected. The cost of red diesel, essential for farming machinery, has surged by 80% since the onset of regional conflicts. Fertilizer availability remains uncertain, particularly affecting livestock farmers, while crop growers are facing volatile energy prices that threaten supply and pricing stability.

Expert Insights

Dr. Liliana Danila, Chief Economist at the FDF, stated:

“The food and drink sector is already feeling the force of this geopolitical shock. As one of the UK’s energy-intensive industries, manufacturers are grappling with soaring energy bills, escalating transport and packaging costs, and disruptions across key supply chains. These pressures are compounding and pose significant challenges for businesses striving to manage costs without passing them onto consumers.

“The current environment is unprecedented and difficult to forecast; however, the rapid pace of cost increases suggests that food inflation will continue to rise in the coming months.”

Government Strategies for Support

The FDF believes there are several critical actions the government can undertake to mitigate these challenges for food and drink manufacturers:

• Extend eligibility for support under the British Industrial Competitiveness Scheme to include food and drink, aiding in managing industrial electricity costs.
• Delay the implementation of new regulations, such as changes to the Nutrient Profiling Model (NPM) and schemes like Extended Producer Responsibility (EPR), which impose additional financial burdens on the sector.

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