Bulletin: Middle East conflict raises risk of inflation

Middle East conflict raises UK food inflation risks

Escalating conflict in the Persian Gulf is disrupting global energy markets, with implications for food costs. Oil and gas prices have already risen as tanker traffic through the Strait of Hormuz has fallen sharply, increasing the risk of higher input costs across the food system.

While prices remain below 2022 peaks for now, sustained disruption could feed through to food inflation over the next year.

Key food impacts

• Higher fertiliser costs driven by rising gas prices

• Pressure on energy intensive categories (controlled-environment agriculture, poultry and pig production and arable farming)

• Inflation risks building gradually, rather than immediately

See our article Middle East conflict: UK food and drink impacts

Spring Forecast and OBR: key takeaways

• The Spring Forecast was low-key, with no major new fiscal announcements and limited scope for policy change

• The Office for Budget Responsibility forecasts show weak economic growth, fragile public finances and debt remaining at historically high levels over the medium term - no major changes since November

• Inflation is expected to fall back towards the 2% target by the end of 2026, but risks have increased following renewed geopolitical tension

• Real household incomes are forecast to grow very little over the next five years, implying continued pressure on consumer spending

• Food inflation has eased in early 2026, but supply side risks and higher business costs mean the improvement may prove temporary

Look out for our new Viewpoint report on Friday, analysing geopolitical and global risks, the 2026 Spring Forecast, the new OBR economic forecast, and risks to food inflation for food and drink businesses.

IGD opinion

While the Spring Forecast anticipates short-term stability, weak growth, political uncertainty and rising cost pressures mean food and drink businesses should prepare for a prolonged period of tough trading and limited consumer recovery.

Economic outlook sharpens food workforce risks

In issuing the Spring Forecast, the Chancellor specifically noted the challenges faced by young adults in entering the workforce.

Meanwhile, workforce pressures across food and drink are becoming increasingly embedded. The latest OBR forecasts reinforce a picture of constrained labour supply, weak productivity momentum and limited scope for relief.

After years of absorbing higher costs and vacancies, the food and drink system is edging from resilience towards risk – with growing implications for availability, service and cost across the supply chain.

See our latest article, Economic outlook sharpens food workforce risks.

Living standards warning

The Resolution Foundation has warned that the Spring Forecast is "already looking out of date" - adding that what otherwise may be a "decent" year for living standards looks set to be punctured by a fresh energy price shock. Its forecasts include:

• Lower income households were set to see real incomes rise by 0.9% in 202526 and 202627, a rare period of growth.

• Escalating Middle East conflict risks adding around £500 to household energy bills, threatening to wipe out these gains.

• Beyond this, real incomes are projected to rise by just 0.5% between 2026 and 2029.

• Resolution Foundation warns the long term outlook for living standards remains bleak, especially for poorer families