A "Super El Niño" driving record-breaking temperatures across Europe may add as much as a full percentage point to inflation next year, complicating central banks' efforts to bring prices under control, according to investment bank Jefferies.

In an analysis published by the firm, Jefferies cautioned that extreme weather tied to the climate phenomenon will pose "an inflationary threat" in 2027, pushing food prices up by between five and nine per cent across the UK and Europe. Previous major El Niño episodes, including the 2015–16 event, have been linked to disruptions in global agricultural output, underscoring why policymakers and markets take the pattern's inflationary potential seriously.

"In the context of already upward pressure on commodity prices due to the US Iran war, this effect is likely to be higher," wrote Mohit Kumar, chief European economist at Jefferies. "Food and related products account for around 13 per cent of the consumer basket in Europe. The severe weather impact could raise inflation by between 0.5 per cent and one per cent next year."

El Niño — Spanish for "little boy" — is a naturally recurring climate event that takes place every two to seven years, during which sea surface temperatures in the Pacific Ocean rise to abnormally high levels. The pattern typically produces hotter conditions worldwide, and this year a particularly intense version has been the primary driver behind Europe's prolonged spell of unprecedented heat and dryness.

Britain's retailers and farmers have issued a cascade of warnings regarding food prices, reporting that this year's crop yields are among the worst on record.

Bank of England Rate-Setters on Alert

The weather event has drawn the attention of policymakers at the Bank of England. Two members of the Monetary Policy Committee — deputy governor Dave Ramsden and external member Megan Greene — flagged El Niño as a factor they intend to monitor when making future interest rate decisions.

In minutes accompanying the rate decision, Ramsden said El Niño "may add to inflationary pressures," while Greene described it as a looming "supply risk."

The Jefferies warning adds to the challenges facing the Bank, which has struggled to contain price pressures following a series of supply-side shocks. Since 2021, inflation has matched the Bank's official two per cent target in only two months, remaining above target for the rest of that period. Food inflation has been a particularly persistent component, reflecting the sensitivity of supermarket prices to energy, transport, and agricultural input costs.

Heading into 2026, economists had anticipated annual inflation would ease to two per cent later in the year, setting the stage for a corresponding decline in interest rates to approximately three per cent. However, the United States' extended military activity in Iran disrupted those forecasts.

Liliana Danila, chief economist at the Food and Drink Federation, said the full consequences of the heatwaves remain uncertain, though food producers are preparing for declining output of key commodities including cocoa, coffee, sugar, and rice. Several of these crops are concentrated in a small number of producer countries, meaning localized weather disruptions can translate quickly into broader global price movements.

"UK food and drink manufacturers have already been grappling with rising costs as a result of the war in Iran, so the impact of extreme weather and reduced crops here and around the world will be an additional concern," Danila said.