The UK economy is recovering well as Covid-19 restrictions are lifted, according to the latest GDP figures. However, a looming threat of rising inflation remains.

McDonalds has run out of milkshakes, Nando’s and KFC are struggling to stock enough chicken and the Co-op says it faces the worst food shortages in memory, making it clear that the UK has a problem getting food to where it needs to be. And there is no sign of this improving anytime soon…

Overall UK inflation increased from 2.1% in May to 2.5% in June with a 2% year-on-year increase in July, however July's slowdown in inflation reflected a jump in prices in the same month last year when Britain's economy was emerging from its first coronavirus lockdown. Earlier this month, the Bank of England said it expected inflation to jump to 4% around the end of the year (which would be a 10 year high), but the BoE also suggested that the acceleration of inflation would prove to be temporary.

In addition to food inflation, the leisure and hospitality industry is also facing a well-publicised labour shortage with an estimated shortage of around 100,000 delivery drivers. As well as causing supply chain disruption, the subsequent wage inflation has materially increased business running costs across the industry.

In May, UN’s Food and Agriculture Organisation reported a 40% monthly increase in their global food price index, the largest jump seen since 2011, driven by spikes in the cost of vegetable oils and cereals.

Increased consumer demand following the lifting of restrictions, as well as changing global demand patterns (and therefore shipping costs) and the lasting effects of Brexit continue to drive up food prices. Agricultural markets, energy, fuel and packaging are also categories experiencing rapid inflation. In the last 12 months the price of crude oil has increased 50% while the average cost of packaging is up 70%.