The fog of war
Against the backdrop of a chaotic 2025 from a domestic political perspective in the UK, no more so epitomised by Chancellor, Rachel Reeves, marching the British up the hill of rising income tax in November only to dysfunctionally bring them back down again before her damaging car crash of a Budget, the outlook for the nation’s consumer economy, of which the food segment is a key component, looked a little brighter.
There was a reasonable prospect, against quite firm comparatives, largely manifesting the elevated cost impact of Reeves’ 2024 motorway smash of a Budget, for consumer price inflation to ease down as the year progressed and, with that prospect in tow, for Bank of England base rates to move downwards too. Both components bring the better chance of rising real living standards, as wage growth remains firmly ahead of inflation, and so improvements to consumer confidence and spending.
Alas, as the late British Prime Minister, Harold MacMillan is alleged to have stated, ‘events, dear boy, events’, have come to promptly curtail such a prospect, in the near term at least, as Israel & the USA commenced their major attack on Iran, which mushroomed out into the wider region from Iranian retaliatory action and an invasion of southern Lebanon.
The nexus of the challenge for the UK consumer economy, and the food market within, emanate from the disruption to the Straits of Hormuz, plus fragility on the Red Sea routes, which has driven turmoil into several spot markets, that most immediately has led to elevated motor fuel prices in the UK, including red diesel for the farming sector, with volatility around fertilisers too.
Quite obviously, the longer the disruption in the Middle East persists, the greater the impact, but for UK households there is already the prospect of higher summer 2026 home heating charges, as suppliers seek to guarantee wholesale supplies from a higher priced market, whilst appreciating swap rates kick into increases in mortgage borrowing costs too. Accordingly, the somewhat feckless Reeves, one week after issuing a farcical and comical ‘Spring Forecast’, where she claimed to have brought stability to the UK economy, when in 2024 and 2025 she was the single most destabiliser, plus lower CPI and base rates, wait for it, had to announce the prospect of the potential for higher CPI, which will most probably prevent H1 base rate cuts, unless Middle Eastern hostilities abruptly end.
For the British food system, after a decade of instability and elevated uncertainty, such developments are tiresome, albeit stress muscles around adapting to major negative change have been well and truly exercised given the compound impact of Brexit, the pandemic, war in Europe, and Trump’s tariffs, not to mention dysfunctional Reeves.
The starting point for worries around matters Iran are around consumer sentiment, where whilst food is considered non-discretionary and so more resilient than many other consumer goods segments, but the it is not immune from a deterioration in the shoppers’ mood music, noting a step down in UK consumer confidence in February, before the Iranian attacks, to some degree reflecting concerns around job security.
Low consumer confidence does not especially assist any participant, nor does further potential upward pressures on industry cost bases, which if so, are likely to perpetuate elevated steps to recovery higher charges from the market. By Christmas 2026, food inflation is expected by Shore Capital to be within a range of 2.0-2.5%, easing progressively through the year against firm comparatives. Such an outcome may yet prevail, but it is likely that there could be nudges higher before they ease even with the short-term impacts outlined above.
Such near-term machinations are set within a context where industry volumes are falling year-on-year (YoY), why is not fully understood, but there is a growing body of evidence that shows a number of factors coming together around well-being, which is helping fresh and whole food demand but working against more processed goods and those high in starch; fibre and protein are the orders of the day. The domestic food system also must face into quite challenging comparatives due to the glorious spring/early summer 2025; maybe the FIFA World Cup and England and Scotland’s presence will absorb some of that comparative headwind, but against such a backdrop, the matters Iran really are not ideal.
Volatility and uncertainty have become an unwelcome order of the day for the British food system over the past decade or so, and it is to be hoped that Middle Eastern events will settle for collective benefit sooner rather than later. In the meantime, British food businesses will have to sustain their reactive muscles seeking to best play the evolving cost and demand factors. In this respect, from a cost management perspective, Coriolis has a lot to offer around the optimisation of operating expenses, something that Mark Dudley and Co., will happily discuss amidst the fog of war.
Dr Clive Black
Senior Advisor
Coriolis Consulting
March 2026
