Middle East briefing: Growing risks to volume recovery

This conflict is more likely to interrupt an already-weak recovery in UK food volumes than to trigger a fresh 2022-style inflation shock. The main transmission is via energy costs weighing on growth and slowing real income recovery, weakening demand. 

What’s happening? 

The latest phase of conflict in the Middle east has driven up global prices for a range of goods: fuels, of course, but also fertilisers and plastics. 

It is easy to envisage a wave of price inflation spreading across the world, impacting different countries and products as it rolls through supply chains. 

So far, however, commodity prices have not risen to the levels seen after Russia attacked Ukraine in early 2022. This may be because global markets were in a different phase in 2022.  

In early 2022, the global economy was recovering from Covid – demand was rising fast and prices for fuel and materials were very high. Outbreak of war in Ukraine added to this pressure. 

In early 2026, markets were much more benign, so the impact of this war has – so far – been more moderate (although this may change).  

What does it mean? 

“More moderate” does not mean “harmless”, however. 

Rising commodity prices have led analysts at IMF and OECD to revise estimates for global inflation up and estimates for growth down. High energy prices are seen as especially challenging. 

The UK has seen abrupt adjustments – if correct, weakening growth and rising inflation moves the UK worryingly close to recession, and / or stagflation. Higher energy costs act as a tax on growth, slowing real income recovery and weakening demand, especially where spending is discretionary. 

The more something costs, the less consumers can buy and so inflation has the effect of eroding real incomes and damping-down volume demand across the economy. 

The UK economy is in a much weaker position than it was in 2022 - it would not take much to push it over the edge and into decline. 

Even in the most optimistic analysis, the latest events are likely to put back the timeline for UK economic revival. 

Impact on food and drink 

With business costs rising on a broad front, it is inevitable that food and drink will also be affected. Margins are so thin that businesses have little option but to pass on higher costs to consumers. 

IGD anticipates that conflict is highly likely to deliver an extra element of food price inflation beyond what was already expected as a result of market forces and, government policy. 

IGD has revised its estimates for food and drink inflation in 2026 upwards. Before the outbreak of war, it was estimated that inflation in this category would be 3.3 - 4.3% in 2026. 

Exactly where it might go depends on many variables – the duration of supply chain disruption, the degree of energy price change and the end result of negotiations. 

In the best case, assuming a fairly short and manageable period of energy price change, there may be an extra 1.0% food and drink inflation, taking the average value for 2026 to 4.3 – 5.3%. In a worse case, inflation may be up to 2.6% ahead of previous expectations.  

This would mean yet another year of strong food price inflation, following immediately after several others.  

Social impact 

Consumers have already endured several years of stronger-then-usual food price inflation in the UK and around the world. 

They have made significant changes to shopping behaviour, purchasing less and making different choices in order to stretch their food budgets, including buying more own label products and using loyalty cards more. 

The effect of this can be seen in market performance – volume growth has been weak for at least the last two years. 

It is not clear how much more scope there is for consumers to make changes without seeing significant social welfare impacts. 

IGD’s ShopperVista data suggests that shopper confidence is already slipping – confidence in March 2026 was the lowest since August 2023. 

Market impact 

The UK food retail market was already struggling when conflict re-erupted in the Middle East. IGD’s previous forecasts suggested a poor outlook for both retail and away-from-home (AFH). 

If, as seems likely, higher energy costs slow real income recovery and keep pressure on demand, the horizon for market recovery will be pushed back yet further. 

This negative impact will likely not be evenly-spread. Price-led retailers like Aldi and Lidl are well positioned and may take advantage of weak consumer spending power. 

Likewise, product performance will likely differ. Speculatively, non-food items like clothing and homewares may suffer, as consumers pare back non-essential purchases. 

Businesses across the supply chain will need to work hard to maintain momentum. But this is not just a business challenge – it is a social challenge too.  

The mission is not just to grow but also to grow whilst protecting consumer welfare. 

Implication for food businesses 

1. Volume-led strategies may remain under pressure for longer 
   Even if inflation pressures moderate, weaker real income growth implies volume recovery could lag planning assumptions, particularly where growth depends on consumers trading back up rather than switching channel or mechanic. 

2. Consumer behaviour changes may prove sticky 
   If the conflict prolongs pressure on household budgets, behaviours developed over several years (trading down, delayed purchases, heightened price sensitivity) may persist longer than expected, even if headline inflation eases. 

3. Greater execution risk around H2 promotional resets 
   Plans that assume a demand-led uplift in H2 2026 (via promotions, premiumisation or range expansion) may carry higher execution risk if real incomes fail to recover as expected. 

4. Recovery becomes more contingent on confidence, not just prices 
   The risk is not just of renewed price spikes, but of weakened consumer confidence, meaning sentiment shocks (energy bills, geopolitical escalation) could have outsized effects on demand even without sustained inflation moves.