UK Inflation Hides Drought-Driven Price Risks

UK supermarket prices rose by only 1.7% in the year to June 2026, lower than expected and contrary to forecasts from the Bank of England and the Food and Drink Federation (FDF).

The Food and Drink Federation had forecast food price inflation to reach nearly 9% by the end of the year, but instead it dropped to 1.7%, down from 2.2% in May.

This relative calm masks a growing risk in the agriculture sector, where severe drought has impacted grass growth, harvests, and irrigation supplies.

Akhil Patel, equity research analyst at Shore Capital, noted that dairy farmers face lower grass growth due to drought, forcing them to use winter silage stock earlier than usual and rely on more expensive purchased feed.