Bulletin: Food inflation forecasts – Middle East impact

Food inflation to rise

The conflict in the Middle East has materially increased the risk of a sharp, short-term rise in UK food inflation by pushing energy costs higher across the food system and across the wider economy.

While food inflation was already expected to be elevated in 2026, IGD analysis shows that even temporary disruption to energy markets could quickly feed through to food prices. Updated modelling highlights three potential outcomes:

• Baseline scenario (assuming no conflict): average food inflation of 3.8% in 2026

• Moderate energy shock: average food inflation of around 4.8% in 2026

• Severe energy shock: food inflation could briefly exceed 8%, averaging around 6.4% across 2026

ONS data shows that all items inflation in February 2026 was 3.0% year-on-year, when measured by the CPI method – no change from January. For food and drink, inflation fell from 3.6% to 3.3%. One reason for this was a reduction in the rate of inflation for confectionery, especially chocolate – global cocoa prices have fallen by almost two thirds in the last year.

See our new article: Food inflation forecasts revised amid Middle East conflict.

IGD opinion

This data pre-dates the latest escalation in the Middle East, which is already causing noticeable increases in the price of motor fuel – household utilities and food may follow later in the year. Some forecasters (including OBR) suggest that UK inflation will be higher than expected in 2026, especially if the conflict persists. IGD’s updated modelling shows that even a short-lived energy shock could lift food inflation meaningfully, while a prolonged conflict could add around 1.0–2.6 percentage points to average food inflation in 2026. The outlook remains highly uncertain, but the balance of risks has shifted clearly upwards, reinforcing the vulnerability of the food system to energy-driven shocks.

Where does your food pound really go?

Rising food prices have fuelled claims of profiteering across the supply chain. IGD’s latest Viewpoint Special report shows a different reality.

• Analysis of nine everyday food and grocery products finds that food inflation has been overwhelmingly cost-driven, not margin-driven.

• On a £20.24 basket, farmers, processors and supermarkets together generated just 29p of profit.

• Margins across the chain remain exceptionally thin, with many businesses absorbing higher labour, energy and regulatory costs to protect affordability.

The report is published in two parts: Part 1 sets out the economic context, drivers of food inflation and IGD’s latest retail food inflation outlook for 2026–27, while Part 2 provides detailed product level cost and margin breakdowns across the supply chain.

Read the Where does your food pound go? report.

Labour law changes intensify pressure

Labour costs are a major driver of food inflation, accounting for around 28% of the final retail price for nine everyday food and grocery items (IGD Food Pound research.)

• Recent increases in the National Living Wage and changes to employer National Insurance Contributions have already pushed costs higher, particularly for retailers and away-from-home businesses.

• From 2026–27, further pressure will come from staged reforms under the Employment Rights Act, introducing new day one rights and stronger worker protections.

• While many measures improve job quality, they will increase costs, operational complexity and legal risk across the food system.

• Read IGD’s Food and drink workforce – a quiet crisis building? report to understand the scale of workforce challenges and the actions businesses can take to improve retention, resilience and long term workforce sustainability.

Read our latest article, Changes to labour laws – what to expect.

IGD opinion

Labour policy is becoming a more predictable but persistent source of pressure for the food system. The Employment Rights Act adds a new layer of change at a time when businesses are already grappling with recruitment, retention and rising costs. IGD’s Quiet Crisis report provides essential context, showing how workforce challenges are building across food and drink and setting out practical actions businesses can take now - from improving job quality to building a more resilient, future-fit workforce - to help manage costs and reduce risk as new regulations take effect.

Free sugars: experts call for greater consistency in measurement

IGD has published a summary of a cross-sector Free sugars expert roundtable, bringing together representatives from government, retail, manufacturing, away from home, academia, trade bodies and an NGO.

The discussion focused on the practical challenges of calculating free sugars consistently for use in the Nutrient Profiling Model 2018, including data availability, interpretation and auditability. The report sets out the key technical issues identified and potential solutions, with the aim of supporting ongoing dialogue between government, industry and academia and helping ensure a level playing field across the UK food system.

Read the summary here.

Farming and food leaders move to unlock growth across the food system

Government and industry leaders have launched a new Farming & Food Partnership Board to boost productivity, profitability and resilience in British agriculture. The move aligns with IGD’s Driving growth through a thriving food system report, which shows that long‑term growth depends on improving farm profitability, unlocking investment and reducing structural barriers across the supply chain. Targeted sector growth plans, starting with horticulture and poultry, aim to translate this ambition into practical action.

Read the Driving growth through a thriving food system report.

Middle East update

Over the past week, risks to UK food inflation from the Middle East conflict have intensified rather than eased. Energy prices have remained elevated, shipping disruption has widened across key routes, and policymakers including the Bank of England, OBR and OECD have hardened warnings around inflation persistence. New evidence also points to rising fertiliser supply risks later in the year.

Lower UK growth and higher inflation warning

The OECD warns the UK will face a sharper economic hit than most advanced economies from the Middle East conflict.

• It has downgraded UK GDP growth for 2026 to 0.7%, a 0.5 percentage point cut, leaving the UK with one of the weakest growth outlooks in the G7.

• Inflation is now expected to average 4.0% in 2026, up from 2.5% previously, driven by higher energy costs feeding through to business costs and food prices.

The OECD warns that sustained energy disruption would further weaken growth, intensify cost of living pressures and delay the return to inflation target.

New data on household incomes: gains are fragile

New data shows real household incomes have improved, but financial resilience remains weak.

The annual DWP report Households Below Average Income shows median household income in 2024–25 rose by 5% in real terms, to £719 per week before housing costs and £623 after housing costs.

Despite rising incomes, many households remain financially vulnerable. The Family Resources Survey shows 37% of households have less than £1,500 in savings and 12% have none, leaving many exposed to further inflation shocks or unexpected costs.