Food inflation forecasts revised amid Middle East conflict

Food inflation was already set to remain elevated

Even before the latest escalation in the Middle East, IGD forecast that UK retail food inflation would remain high in 2026. Our baseline forecast, issued in November 2025, suggested that food and drink inflation would average 3.3–4.3% over the year, with around 3.8% most likely.

This reflected a food system already under pressure from rising labour costs, regulatory change, and limited scope for businesses to absorb further shocks. The conflict adds to these pressures, increasing risks around food inflation in 2026.

Global energy markets responding to conflict

At the time of writing, fighting in the Middle East is ongoing. There is a temporary and limited pause in some US strikes, alongside active diplomatic efforts aimed at de-escalation. However, uncertainty remains high and markets continue to price-in geopolitical risk.

As a result, global energy prices remain elevated. In the UK, motor fuel prices have already risen and there is a risk that domestic energy prices could increase later in the year, when the current energy price cap is reset.

All items inflation will reflect these developments when March CPI data is published (25 March) – although shopper impacts and behavioural responses typically precede official data.

The Office for Budget Responsibility and the Bank of England’s Monetary Policy Committee have both signalled the risk that all items inflation could exceed previous forecasts.

The situation remains extremely fluid, making precise forecasting difficult. However, the longer instability persists, the greater the inflationary impact is likely to be – particularly given existing cost pressures across the food system.

Impact on food and drink prices

The food and drink supply chain is highly energy intensive. Major businesses attempt to manage energy price risks through hedging and efficiency measures, but sustained higher prices ultimately translate into higher costs, especially as old hedges expire and new hedges must be made.

These higher costs are, in turn, reflected in food prices for consumers, both in retail and away from home (AFH). Pass-through may be relatively rapid, especially given the low margins available for many food and drink products, which leave limited scope for businesses to absorb additional cost increases.

This pattern has been seen clearly in previous energy crises – most recently following Russia’s invasion of Ukraine – although the strategic context today is different, suggesting potentially different outcomes.

IGD food inflation forecasts

Before conflict escalated in the Middle East, IGD forecast that food and drink retail inflation in 2026 would average 3.3–4.3%, with around 3.8% most likely.

This baseline remains a critical reference point, showing how food prices were expected to evolve even in the absence of renewed geopolitical disruption. Even at the lower end of this range, inflation would still be high by historical standards, implying continued pressure on food shoppers.

One reason for this elevated baseline is that a significant share of food inflation in 2026 is expected to be driven by government policy, including:

• Business rate changes

• Extended Producer Responsibility (EPR)

• Increases in the National Living Wage (NLW)

• Additional employment costs linked to the Employment Rights Act

These policy driven costs are largely locked-in in terms of timing and scale, making 2026 a higher inflation year for food regardless of geopolitical developments.

Defining the conflict scenarios

To understand how the conflict could alter the outlook, IGD has developed two illustrative inflation scenarios. These are structured assessments designed to show how food inflation might respond under different energy price shocks.

Both scenarios assume that the conflict is relatively short lived, followed by a return towards more normal market conditions.

Scenario 1: Short, moderate energy price shock

• Oil prices rise by around 50% (moving to US$105pb)

• Gas prices rise by around 63% (moving to 4.85 ppkwh)

• Disruption lasts around three months, followed by a relatively quick return towards long run averages

Scenario 2: Short, intense energy price shock

• Oil prices rise by around 150% (moving to US$140pb)

• Gas prices rise by around 250% (moving to 10.45 ppkwh)

• Disruption lasts up to three months, followed by a return towards long-run averages

To compare, in the aftermath of the invasion of Ukraine, oil prices peaked at US$120 and gas prices at 18ppkwh), so these scenarios seem reasonable.

What do these scenarios mean for food inflation?

Adding these scenarios to IGD’s forecasting platform suggests the following outcomes:

• Under Scenario 1, conflict would lift food inflation by around 1.0 percentage point in 2026, taking average inflation to an average of 4.8% for 2026.

• Under Scenario 2, inflation could be around 2.6 percentage points higher, lifting average food inflation to around 6.4%.

Even if fighting were to ease relatively quickly, some impact on food prices in 2026 now looks likely. As the Bank of England has emphasised, the key risk is not short-term volatility but persistence – if higher energy prices last longer than expected, inflation effects will be more pronounced.

Amplifying factors

Active diplomacy raises the possibility that fighting could de-escalate over time, with a gradual return towards more stable conditions.

However, there are three potential amplifiers that could lead to more damaging outcomes for food shoppers.

First, energy markets may deliver higher prices than assumed in the scenarios, or elevated prices could persist for longer.

Second, even if hostilities ease, the Middle East region may remain insecure. Experience from the Red Sea shows that shipping companies are understandably cautious, and this can continue to affect supply routes, insurance costs, and freight rates.

Third, an energy price shock could coincide with another adverse event – for example, extreme weather – compounding cost pressures on food production and distribution.

Cumulative inflation effects

The food and drink inflation impact from the current conflict is expected to be less severe than that seen following the outbreak of war in Ukraine.

However, many UK households are now in a weaker financial position than they were in 2022, meaning the welfare impact of further food price rises could be greater, particularly for lower income and vulnerable households.

Lower inflation does not mean lower prices.

Even if inflation eases in 2027, food prices will continue to rise – just at a slower pace than before. Inflation outcomes in 2026 should therefore be viewed in the context of several previous years of elevated food inflation.

The cumulative impact is significant. Even in the baseline no war scenario, food prices at the end of 2026 could easily be around 45–50% above pre-Covid levels, continuing to weigh on household budgets and shape consumer behaviour.

Food system responses

In the short term, it is hard to see how UK food and drink businesses can respond to the global energy shock delivered by conflict in the Middle East.

In the long term, the best defence against energy shocks – in fact, the best defence against many types of disruption – may be to boost UK self-sufficiency and resilience.

The most sustainable route to moderating food inflation is not cost absorption, but improving productivity, resilience, and availability. 

This includes investment in domestic production, supply-chain efficiency and policy approaches that avoid adding unnecessary cost and uncertainty to a food system already operating on extremely thin margins.