UK food inflation could reach at least 9% by the end of the year as a result of the ongoing conflict in the Middle East, according to a local trade body.
In September, The Food and Drink Federation (FDF) had forecast inflation for food and non-alcoholic drinks would reach just over 3% by December this year.
Today (1 April), the UK trade body said it now expects inflation to hit between 9 and 10%.
It said its forecast had been "uprated" due to the closure of the Strait of Hormuz and the effect on oil and gas facilities in the Middle East.
The change "is based on assumptions that the Strait of Hormuz opens to cargo traffic within the next two to three weeks and the majority of key facilities, such as oil, gas and fertiliser sites, return to normal within a year".
The association added UK food and drink producers were seeing "a direct and immediate impact on production costs" as a result of the present disruption to global oil and gas markets.
While larger and medium-sized companies can protect themselves from shifts in the price of energy "with a mixture of contract lengths", they are still preparing for "sharp rises" as these contracts come up for renewal, the FDF said.
Smaller businesses on the other hand are already seeing "cost spikes", it added.
According to the group, the food-and-drink industry is also feeling the effect of lost sales, as exporters have had to pause or cancel shipments of some UK goods to the Middle East, like cereals, chocolate, cheese and biscuits.
Agriculture has also been impacted by the conflict, with the cost of red diesel, used in farm machinery having shot up 80% since the conflict started and supply becoming low in some areas of the UK.
Dr Liliana Danila, chief economist at the FDF, said: “The food and drink sector is already feeling the force of this geopolitical shock. As one of the UK’s energy intensive industries, manufacturers are facing mounting energy bills, rising transport and packaging costs and disruption across key supply chains. These pressures are hitting simultaneously, and are a significant challenge for businesses to absorb.
“The current situation is unprecedented and hard to predict, however given the scale and speed of these cost increases, and despite companies’ best efforts not to pass price increases on, it’s clear that food inflation is going to rise in the months ahead.”
Yesterday, Princes Group, the UK-listed food-and-drinks manufacturer, said it would look to raise prices to offset the higher costs the company faces due to the conflict in the Middle East.
Simon Harrison, Princes Group’s CEO, said today (31 March) the brands and private-label supplier was seeing “substantial cost increases across the supply chain”, pointing to fuel and shipping.
