Key Takeaways
- A record summer of UK heatwaves is likely to have long-term consequences for productivity, inflation and infrastructure, analysts say.
- Utilities stocks could benefit from expected upgrades to energy and water infrastructure, experts predict.
- Analysts say the impact of the summer 2026 heatwaves will soon start to show up in earnings reports.
With 2026 set to be the hottest UK summer on record, companies are having to adapt to more frequent bouts of extreme weather. This summer’s multiple heatwaves and droughts have changed assumptions about critical energy and water infrastructure, as well as food scarcity. And this altered landscape, as well as changing consumer behavior, brings risks and opportunities for investors, experts say.
The impact of this summer’s weather on the UK economy was significant, analysts say. The London School of Economics’ Grantham Institute estimates that June’s heatwave alone cost 24 million of lost working hours. In financial terms, environmental think tank Verdant says £4.4 billion has been lost in output so far this year from heat disruption, while cumulative productivity losses could reach £25.6 billion by 2030 as heatwaves intensify.
UK Food Prices Likely to Rise
The summer heat has also caused a clear impact on farmers, with this year’s harvest set to be the worst since records began in 1984, according to estimates by the Energy & Climate Intelligence Unit, a think tank. This would mean four of the five worst harvests have occurred in the 2020s.
At a time when the Bank of England is already considering increasing interest rates to combat the inflationary effects of the Iran war, higher food prices could add further pressure.
Morningstar retail analyst Verushka Shetty says supermarkets have been importing more products to fill the gaps left by the weak harvest, which could lead to higher retail prices.
“In the competitive UK grocery market, we expect the largest UK grocers to aim to keep prices as stable as possible; however, we could see an inflationary impact on consumers,” she says.
David Rees, head of global economics at Schroders, adds that a potential ‘Super El Niño’ extreme weather event could “significantly lift UK food prices” in 2027. Droughts in other countries could increase the cost of imported food further.
Utilities Under Pressure
The drought has also increased pressure on UK utilities, with water companies under increasing scrutiny. Some 2.6 billion liters of water, or roughly one-in-five liters of the public water supply are lost to leaks every day in the UK, according to the latest Ofwat figures.
Mark Brennan, real assets portfolio manager at Guinness Global Investors, says improving the efficiency of water infrastructure becomes even more material when the UK is in a position of drought.
“It increases the importance of investment to build resilience into our systems. It might mean new reservoirs or new pipes, and it may involve a whole host of different solutions,” he says.
“From an investor’s perspective, particularly within regulated areas such as water, more investment generally means additional investment returns,” he adds. “There are potentially interesting opportunities within water infrastructure as we scale up the investment required to adapt to potentially more volatile conditions in the UK, particularly in terms of droughts.”
Heat Is Now Another Risk to Manage
Saurabh Sharma, who comanages the Gold-rated Regnan Sustainable Water and Waste Fund, says while extreme weather strengthens the structural need for water resilience, wastewater upgrades, and flood protection, it can also increase operating costs and intensify regulatory, political and balance-sheet risk, which could expose fragile companies.
“In our view, weather extremes are here to stay and companies that approach them with a ‘systems resilience’ mindset, treating physical risk as a core risk-management process rather than a disclosure exercise, can turn the pressure into a long-term opportunity,” adds Sharma.
Heatwaves also increase pressure on electricity networks as demand for cooling rises while heat can reduce the efficiency of the grid.
Raymond James’s head of responsible investing Paris Jordan says demand is growing for more efficient energy and water infrastructure designed to cope with higher temperatures.
“Businesses providing these solutions could benefit from years of structural investment,” she says. The key, for patient investors, is how to identify the companies most willing to adapt and innovate.
How Are UK Companies Adapting?
The latest earnings season revealed early signs of how UK companies have started to adapt to the heatwaves.
After bakery chain Greggs GRG issued a profit warning last summer as high temperatures hit sales, investors feared the company would struggle to meet targets again this year as its usual hot staples prove less appealing. However, Greggs adapted its project range, rolling out more summer-specific food and drink options. The company reported a rise in sales and profits at the half-year stage, and Greggs shares are up 12% so far this year.
Meanwhile, renewable energy firm Drax Group’s DRX chief executive Will Gardiner said extreme summer weather across Europe is creating a “new reality” for energy networks.
Raymond James’s Jordan says that companies globally are starting to talk about heat more in financial statements. She says the impact of more extreme weather has so far been limited for UK companies. However, the impact on them will become more clear in earnings in the coming months, she says.
“For the UK, it’s still more future-related. There are minor impacts at the moment, from people perhaps working from home and making adaptations to their day-to-day lives. There’s also the cost of air conditioning when it comes to electricity bills, but these aren’t going to be material for companies,” she says. “It’s the same with insurance. We’re not yet seeing UK companies having to pay through the roof for insurance because of climate-related risks.”
