Food and non-alcoholic drink inflation is expected to reach almost 4% by the end of 2026, before rising further next year, according to the latest Food Inflation Forecast from the Food and Drink Federation (FDF).
Overview
- The Food and Drink Federation’s latest forecast shows food inflation is expected to reach nearly four per cent by Christmas, peak at 6.4% in July 2027 and be higher than historical averages throughout 2027
- This is the result of the shock of the conflict in Iran, coupled with the impacts of extreme weather on the global food supply chain
- Manufacturers have worked hard to protect consumers from the initial shock of the Iran war, however their resilience is wearing thin. With disruption the new normal, Government must take the UK’s food security seriously by relieving immediate regulatory pressure
The FDF forecasts that food inflation will reach 3.9% by December 2026, before peaking at 6.4% in July 2027. It is then expected to remain significantly above historical averages throughout the second half of the year.
The forecast comes as food and drink manufacturers continue to face a combination of geopolitical instability, climate-related disruption, rising energy costs and increasing regulatory pressures.
According to the FDF, the impact of the conflict in Iran, combined with the effects of El Niño and droughts across the UK and Europe this summer, will continue to feed through the food supply chain into next year.
Food manufacturers have so far absorbed much of the initial impact of rising costs in an effort to protect consumers from further price rises. However, the FDF argues that after six years of significant disruption, businesses are increasingly reaching the limits of what they can absorb.
This means the latest inflationary shock could look very different to previous periods of volatility.
Following Russia’s invasion of Ukraine, food inflation surged rapidly, eventually exceeding 19%. By comparison, the FDF expects the latest increase to arrive more gradually and remain elevated for a longer period.
Disruption becomes the new normal
The pressures facing manufacturers are being felt across almost every stage of the food production process.
Energy is a particular concern. Gas prices have more than doubled since February 2026, while UK electricity prices remain among the highest in Europe. For an industry that relies heavily on energy-intensive manufacturing processes, refrigeration, heating and transportation, sustained increases create significant pressure on operating costs.
Diesel prices have also risen by 28.6% since the beginning of the conflict in the Middle East, adding further costs for manufacturers moving raw materials and finished products through the supply chain.
At the same time, climate-related disruption is pushing up the price of key ingredients.
The FDF reports that wheat prices have risen by 45%, cocoa by more than 100%, rice by 60%, sugar by 27% and coffee by 22%. Produce grown in the UK has also increased in price by almost 10% over the past year.
Droughts across the UK and Europe are expected to add further pressure, with manufacturers anticipating higher costs for fruits, vegetables and grains in the months ahead.
For food and drink manufacturers, these pressures are particularly difficult to navigate because they sit between farmers and retailers, absorbing changes in input costs while operating in an extremely competitive grocery market.
The FDF describes manufacturers as the “shock absorbers” of the food system, with businesses working to maintain supply and keep prices as low as possible despite mounting costs.
However, that ability to absorb costs is becoming increasingly difficult to sustain. Businesses are already adapting their operations, including by diversifying supply chains and increasing the use of hedging arrangements to protect themselves against future volatility.
The FDF believes this could result in a different pattern of inflation in response to future shocks, with manufacturers potentially passing on increases more gradually but over a longer period.
A growing regulatory burden
Energy, logistics and raw material costs are not the only pressures facing the sector. The FDF is also warning about the cumulative impact of regulation, claiming that five government regulations alone added an estimated £2bn of costs to the food and drink manufacturing sector in 2025.
The organisation is calling on government to provide targeted support with energy bills, arguing that similar assistance is already available to other manufacturing industries.
It is also urging the government to ensure that packaging and recycling reforms are implemented effectively, while pausing planned changes to advertising and promotion rules which, it argues, could place further demands on already stretched businesses.
Karen Betts, chief executive of the FDF, said manufacturers had worked hard to minimise the impact of rising costs on consumers, but could not continue to do so indefinitely.
“Food and drink manufacturers have kept food prices as low as possible during the energy shock since the closure of the Strait of Hormuz, including by driving new efficiencies in their operations,” she said.
“But they can’t do this indefinitely. The persistently higher costs of energy, logistics and packaging, compounded by this summer’s extreme heat, mean that food prices will rise this year, and we believe that rise will be sustained into 2027.”
The scale of the increase could have a significant impact on household spending. The FDF estimates that food prices have already risen by almost 40% since 2020.
As a result, a weekly grocery shop that cost £100 in 2020 would now cost almost £140, and could approach £150 by next summer if current pressures continue.
For consumers, that represents another squeeze on household finances. For manufacturers, however, the challenge goes beyond simply managing higher costs.
Food and drink manufacturing is one of the UK’s largest manufacturing sectors, supporting jobs, investment and supply chains across the country. The industry also provides a critical link between the UK’s agricultural sector and the retailers that ultimately supply consumers.
The FDF argues that giving manufacturers greater breathing room would allow businesses to redirect resources towards investment in technology, skills, training and innovation, rather than using those resources simply to manage rising costs.
The challenge, therefore, is balancing short-term affordability with the longer-term resilience of the UK’s food system.
With inflation forecast to remain elevated well into 2027, manufacturers are warning that continued pressure on energy, ingredients, logistics and regulation will ultimately become increasingly difficult to absorb.
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