Iran War ‘could see UK grocery bills jump up by £340 a year’

The average UK household could be spending almost £340 a year more on food and drink due to the impact of the Iran War, a report has warned.

Analysis by the Institute of Grocery Distribution (IGD) set out two possible scenarios for the conflict in the Middle East, and how they would impact supermarket prices back in the UK.

Even though both assumed the disruption would be ‘relatively short-lived’ – possibly with a ceasefire secured and energy production freed up – neither was good news for inflation.

In the event of a ‘moderate energy price shock’, average food inflation would hit 4.8% – but an ‘intense energy price shock’ could kick it up to 6.4%.

For an average UK household with an annual grocery bill of £5,283, the latter scenario would mean an increase of £338 a year.

Joe Nellis, an economics professor at Cranfield University, said: ‘For shoppers, this means tougher decisions each week: switching to cheaper alternatives, cutting back on non-essentials, or simply buying less.

‘Everyday items — from bread to fresh produce — are particularly exposed to rising input costs, meaning price increases can appear quickly on supermarket shelves.’

Clothes shop Next has also warned its prices are likely to increase as a direct result of the war on Iran, due to the rising costs of fuel and air freight.

The retailer said: ‘Beyond the next three months, if we see these costs persist, then we will ​begin to pass costs through as higher pricing – but for today that remains ​a contingency not a plan.’

The figures highlight how more expensive oil and gas can have a direct impact on the price of everyday basics.

‘Energy is a very important ingredient,’ Dr Muhammad Ali Nasir, Professor of Economics at Leeds University told Metro.

‘It’s like the blood of the economy, really, and the blood of the industry and services sector. Without energy, our economy can’t function.’

Unlike households, businesses do not have an energy bill price cap, meaning local shops, pubs and cafes can start feeling the pinch a lot sooner and be forced to pass that burden on to their customers.

Professor Nasir said: ‘If you take a supermarket, without naming one, they use energy in a big quantity.

‘And if now they are paying more on filling up at the pump, in just a matter of, I would say, a few days, they will have to take that into account to be sustainable as a business.

‘So as soon as their cost of business has gone up, that would be translated into prices very soon. So I won’t be surprised if, in the very, very near future, we’ll see that the impact has been felt.’

James Walton, the chief economist at the OGD, said ‘it is hard to see’ how British food and drink firms can respond to the price shock in the short term.

However, he added: ‘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.’

The OGD report came ahead of a major new economic forecast which suggested the UK will be hit harder by the Iran War than any other major country.

According to global trade organisation the OECD, the British economy is set to grow by 0.7% this year – a significant downgrade from its pre-war prediction of 1.2%.

The report also said inflation would accelerate to 4% this year, which would be the second-highest rate among G7 nations.

Professor Nellis said: ‘This places the Bank of England in a difficult position — support growth and risk fuelling inflation, or keep interest rates higher for longer and deepen the slowdown.’

Last week, the Bank announced interest rates would be held at 3.75% as hopes of any further cuts this year have faded from view.

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