Rising Oil and Fertiliser Costs Threaten Grocery Bills as Analysts Warn Outlook Worsening

UK food inflation is expected to rise more sharply than previously anticipated this year as the impact of conflict in the Middle East continues to affect energy markets and supply chains, according to analysts at Shore Capital.

Grocers such as Tesco, J Sainsbury, Lidl, Aldi and B&M European Value Retail are expected to demonstrate greater resilience than discretionary retailers as household budgets come under increasing pressure. However, the sector faces headwinds as input costs continue to climb.

Shore Capital analyst Clive Black has revised his earlier cautious optimism, stating that the impact of the Middle East conflict on prices has led the firm to increase its domestic food inflation forecast. The broker now expects UK food inflation to exceed 3% by the end of 2026, up from previous estimates of 2.0% to 2.5%.

Higher oil prices are already exerting pressure across the system. Diesel prices have risen 24% since early March, whilst petrol is up 13%, increasing both household budget constraints and logistics costs. These pressures are filtering through to fertiliser, packaging and transport expenses, with dairy farmers and other producers facing margin compression as input costs rise faster than selling prices.

Black noted that the longer military actions persist, the more elevated and sustained the impact on the UK consumer economy will be, with higher costs likely to feed through gradually into grocery prices. The squeeze is already visible in weaker consumer confidence, with the broker warning of more compressed real living standards and a more fragile outlook for discretionary spending.