The baby formula market needs a shake-up to help parents struggling to afford it, according to the UK’s competition watchdog.

There are “limited incentives” for the industry to compete on price and parents have suffered the consequences of high prices, said an interim report by the Competition and Markets Authority (CMA).

The watchdog has previously reported a 25% increase in prices over the past two years, with just two companies, Nestle and Danone, controlling 85% of the market.

Among its recommendations is a call for better public health messaging and clarity for parents trying to choose between different brands.

The CMA also confirmed it is examining the effect a price cap would have, but said it is not currently recommending one.

The report said: “The CMA has provisionally found that – unlike in many other grocery categories – there is little pressure on manufacturers or retailers to shelter customers from increases in manufacturing costs, which have largely been passed on quickly and in full.”

Sarah Cardell, the CMA’s chief executive, said: “This is a very important and unique market.

“We’re concerned that companies don’t compete strongly on price and many parents – who may be choosing infant formula in vulnerable circumstances and without clear information – opt for more expensive products, equating higher costs with better quality for their baby.

“We have identified options for change, but now want to work closely with governments in all parts of the UK, as well as other stakeholders, as we develop our final recommendations.”

The CMA expects to publish a final report in February. Earlier this year, the regulator announced that it would inspect baby formula prices amid concerns that they remain “historically high.”

Its decision to launch a market study gave it the authority to require suppliers to disclose detailed information on pricing and other practices.

Previously, the CMA relied on voluntary submissions from suppliers.

In 2023, the World Health Organization (WHO) urged governments to act over soaring baby formula prices, which it said was “exploiting” families in the UK.

In an interview with Sky News, WHO criticised multinational manufacturers for “manipulating prices” to boost profits on baby formula.

Research at the time showed that formula prices in the UK had risen by 24% over the previous two years, with the lowest-cost brands seeing a 45% increase during that period.

WHO is calling on governments to step in and help ease the burden on struggling families by finding ways to lower prices in stores.

Sky News has previously reported on the extreme measures some parents are taking to feed their infants, including stealing formula, purchasing it on the black market, diluting bottles, or using condensed milk as a substitute.

Laurence Grummer-Strawn, WHO technical officer, told Sky News, “It’s shocking to see a high-income country like the UK facing situations where mothers can’t afford to feed their babies.”

When asked if this situation constituted exploitation, Grummer-Strawn said: “Yes, I think we can say that when you see that these prices are being driven down to the consumers and having to pay extremely high prices.”

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The Bank of England has forecast Rachel Reeves’s first budget as chancellor will increase inflation by up to half a percentage point over the next two years, contributing to a slower decline in interest rates than previously thought.

Announcing a widely anticipated 0.25 percentage point cut in the base rate to 4.75%, the Bank’s Monetary Policy Committee (MPC) forecast that inflation will return “sustainably” to its target of 2% in the first half of 2027, a year later than at its last meeting.

“Since the MPC’s previous meeting, the market-implied path for the Bank rate in the United Kingdom has shifted up materially,” the MPC said in its minutes.

Interest rate falls – latest updates

The Bank’s quarterly Monetary Policy Report found Ms Reeves’s £70bn package of tax and borrowing measures will place upward pressure on prices, as well as delivering a three-quarter point increase to GDP next year.

Governor Andrew Bailey stressed however that the underlying trend was “continued progress in disinflation”.

The MPC, whose members voted 8-1 in favour of the cut, with the single opponent favouring a hold at 5%, maintained its view that rates will need to fall “gradually” as it monitors the economic response to falling inflation.

“Inflation is just below our 2% target and we have been able to cut interest rates again today,” said Mr Bailey.

“We need to make sure inflation stays close to target, so we can’t cut interest rates too quickly or by too much. But if the economy evolves as we expect it’s likely that interest rates will continue to fall gradually from here.”

Why will inflation rise?

The Bank forecasts that the upward pressure on prices will begin in the first half of next year, with the addition of VAT to private school fees and the £1 increase in the bus fare cap to £3.

The increase in employer national insurance to 15%, the largest single measure in the budget, is “assumed to have a small upward impact on inflation,” offset by the freeze in fuel duty rates.

Together these will push inflation up by 0.3 percentage points next year, with the near-half point peak coming in 2026 only after the removal of the fuel duty-freeze, a measure the Bank is compelled to assume will happen, despite successive chancellors, including Ms Reeves, maintaining it for 11 years.

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The Bank found that the national insurance increase and the uprating in the national living wage “is likely to increase the overall costs of employment”, and will be passed on by employers through a mix of higher prices, marginal costs and wages, but the balance between those is not yet clear.

“The combined effects of the measures announced in the autumn Budget 2024 are provisionally expected to boost the level of GDP by around three-quarter per cent at their peak in a year’s time, relative to the August projections,” the minutes read.

“The budget is provisionally expected to boost CPI inflation by just under half of a percentage point at the peak, reflecting both the indirect effects of the smaller margin of excess supply and direct impacts from the budget measures.”

The battle for control of Thames Water’s future has deepened after a second group of bondholders tabled a fully underwritten offer to provide £3bn of new debt.

Sky News has learnt that the utility’s class B bondholders submitted a proposal to the company on Thursday morning which aims to trump a rival offer from its class A creditors.

The submission of the class B group’s legally binding agreement sets up a tussle between some of the world’s largest pension funds, hedge funds and insurers for a key role in determining the fate of Britain’s biggest water company.

Thames Water, which has about 16 million customers, is scrambling to avert the threat of insolvency and temporary nationalisation as it seeks a compromise from Ofwat, the industry regulator, over its spending plans for the next five years.

The company’s shareholders have already abandoned plans to inject billions of pounds into it, describing it as uninvestible.

The tabling of the latest proposal will put pressure on Thames to reconsider its public support for a more expensive deal with the class A group, which includes the likes of Silverpoint and Elliott Advisors, the American hedge funds.

One of the members of the class B group said its plan provided Thames Water with “a deliverable and binding offer to address the company’s immediate funding needs”.

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Amid a dispute with the class A debtholders about the relative cost to Thames Water of their proposals, the source said the class B financing would provide “twice the capital at a far lower cost and on more flexible terms”.

They added that it was open to all Class A and Class B holders.

It was unclear whether Thames Water would be able to engage on the class B proposal under the terms of the deal the company has already endorsed with the class A group.

The class B plan has been assembled and financed in less than a fortnight by DC Advisory, the investment bank, and law firms Quinn Emmanuel Urquhart & Sullivan and Sidley Austin.

The Class B debtholders have calculated that Thames Water could save approximately hundreds of millions of pounds in interest payments and fees over a 12-month period if the company switches its backing to their proposal.

Alastair Cochran, Thames Water’s chief financial officer, said last month that the Class B group’s proposals, which include funding lent at an interest rate of 8%, were insufficiently detailed to garner the board’s support.

A separate equity-raising process is being run by bankers at Rothschild, with Sky News revealing last weekend that KKR, the American private equity behemoth, is the latest party to express an interest in a deal.

Any substantial pay packages for Thames Water executives – particularly at one standing on the brink of collapse – arising from the deal would be highly contentious, with the government recently having established an independent review of the industry that will look at far-reaching reforms.

A significant incentive plan would also be controversial given that Thames Water will require forbearance from Ofwat, the industry regulator, in terms of substantial fines and other penalties it is likely to have to pay because of its dire record on sewage leaks and wastage.

A spokesman for the class B group, whose members include BlackRock, the world’s biggest asset manager, declined to comment.