The Institute of Grocery Distribution (IGD) has released updated inflation forecasts for the UK food and drink sector, warning that food inflation could briefly reach more than 8% by June 2026 if disruption to global energy markets persists.
The rise would be more than double the current food inflation rate of 3.6%. IGD said that this would come on top of a “sustained rise” in prices, as UK retail food prices are now around 38% higher than pre-Covid levels.
In IGD’s potential future scenario, which it said was the most severe, there would be an average food inflation of around 6.4% across 2026, adding over £150 to the average household’s annual grocery bills. Even in IGD’s baseline scenario mapping, which assumes no Middle East conflict, retail food inflation is forecast to average 3.8% in 2026, implying that UK shoppers collectively would still need to find close to £10 billion more to buy the same basket of food.
In IGD’s “middle scenario”, a more moderate but temporary energy shock would lift average food inflation to around 4.8% in 2026. It said that this would underline that even relatively short-lived disruption in energy markets could have an impact on food prices.
“When margins are this tight, businesses have limited capacity to absorb global shocks, invest in resilience or protect supply.”
James Walton, chief economist at IGD, commented: “Even in the best-case scenario, the conflict in the Middle East is likely to prolong the timeline for recovery from the cost of living crisis. If the energy shock is more severe, food inflation could reach over 8% by June 2026 versus 3.6% now, which would add over £150 onto the average household grocery bill per year.
“Persistently high food prices continue to fuel concern over excess profits, based on the assumption that higher prices must mean higher profits for food businesses. Our Food Pound analysis shows that the evidence points in the opposite direction: margins for basic food and drink remain exceptionally thin, and in many cases have fallen in recent years.
“For example, margins on nine everyday food items average just 1.5% across the supply chain, with items such as chicken breast sold at cost and beef mince generating under 1% margin. When margins are this tight, businesses have limited capacity to absorb global shocks, invest in resilience or protect supply. Over time, that increases the risk of weaker availability and greater price volatility.
“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 volatility to the system.”
