UK Businesses Project Food Inflation to Rise to 7% in 2026, Bank of England Survey Indicates
Introduction
A survey conducted by the Bank of England has revealed that UK businesses anticipate food inflation could reach 6–7% during 2026, a revision upward from earlier expectations. The assessment is based on feedback from firms regarding rising energy, transport, and agricultural costs, compounded by the ongoing conflict in the Middle East.
Main Body
The Bank of England’s latest report on business conditions, published on 24 April, synthesised opinions from company contacts. Respondents indicated that consumer goods inflation remains concentrated in food prices, which had risen 3–4% year-on-year. Although uncertainty is high, concerns over food inflation are more pronounced than for other goods due to elevated input costs. Contacts expressed apprehension that food inflation would increase through 2026, potentially to 6–7%, rather than declining as previously forecast. Official data released on Wednesday showed that food and non-alcoholic drink prices rose 3.7% annually in March, an acceleration from 3.3% in February. A separate projection from the Food & Drink Federation (FDF), a UK trade association, offered a more pessimistic outlook. FDF chief economist Dr Liliana Danila stated that the conflict in the Middle East has introduced a cost shock too large for manufacturers to fully absorb. She noted that long-term contracts between manufacturers, suppliers, and retailers can delay the pass-through of higher costs by up to a year, but prices for less processed goods or shorter supply chains will adjust more rapidly. In the absence of government intervention, the FDF expects a gradual but persistent increase in food inflation, reaching approximately 9–10% by the end of 2026. The Bank of England’s Decision Maker Panel (DMP) survey, covering the three months to April, found that finance chiefs across UK companies expect to raise their own prices by an average of 3.8% over the next 12 months—0.3 percentage points higher than the prediction for the three months to March. Nearly two-thirds (64%) of respondents indicated they would adjust to the recent energy shock by increasing prices. Separate research by the Bank’s agents across the UK corroborated these concerns, with businesses citing the Middle East conflict’s potential impact on demand, supply chains, and input costs. However, the agents noted that, aside from a small number of firms trading directly with the region, few reported significant effects on output or activity thus far. Other sectors have also voiced worries about rising transport and energy costs, suggesting that inflationary pressures are not confined to food. The Bank’s report characterised the conflict as having “eroded” confidence that the economy would improve later in the year, though the direct economic disruption remains limited for most firms.
Conclusion
In summary, UK businesses and trade bodies foresee a notable increase in food inflation during 2026, driven by higher input costs and geopolitical instability. While the Bank of England’s survey points to a rise to 6–7%, the Food & Drink Federation projects an even steeper climb to 9–10%. The divergence reflects differing assumptions about the speed and extent of cost pass-through, as well as the potential for government intervention. The outlook remains subject to considerable uncertainty, contingent on the evolution of energy prices, supply chain dynamics, and the Middle East conflict.