Chipflation Hits Britain: the AI Memory Shortage Driving Up Gadget Prices and Worrying the Bank of England

A shortage of memory chips, driven by the world's insatiable appetite for artificial intelligence, has begun to wash ashore in the British economy. The crunch is quietly pushing up the price of everything from smartphones and laptops to games consoles, and it has caught the attention of the Bank of England, which now counts it among the forces keeping inflation stubbornly high.

The numbers behind the squeeze are startling. According to J.P. Morgan Global Research, the price of DRAM, the working memory found inside almost every electronic device, is estimated to rise by more than 400 percent between the start of 2024 and the end of 2026. The analyst firm TrendForce reported that personal computer memory prices were on course to roughly double from the level seen over the holiday quarter.

TrendForce revised its forecasts sharply upwards during the year, estimating that contract DRAM prices jumped by around 90 to 95 percent in the first quarter of 2026 alone, while NAND flash, the memory used for storage, climbed 55 to 60 percent. Prices for the low power LPDDR memory found in mobile devices saw what the firm called the steepest increases in their history.

Why memory suddenly costs so much

The root cause is the boom in AI data centres, whose hardware devours enormous quantities of memory. Chip makers such as Samsung, SK Hynix and Micron have redirected much of their output toward high bandwidth memory, or HBM, the specialised chips that feed powerful AI accelerators, leaving far less capacity for the ordinary memory that goes into the phones, laptops and consoles people buy.

The appetite is enormous. A single one of Nvidia's Vera Rubin NVL72 systems, built for demanding AI workloads, contains around 54 terabytes of LPDDR5x memory. To lock in supply, the largest cloud companies have been signing long term agreements running five years or more, and Meta raised its capital spending guidance by 10 billion dollars, citing the rising cost of AI hardware and memory.

The bill lands on consumers

As factories prioritise the most profitable AI chips, the extra cost works its way down to the products people actually buy. J.P. Morgan noted that the United States import price index for computers, peripherals and parts had risen 37 percent, while a related measure covering computer software and accessories had climbed 23 percent since the end of 2024, a sign of how broadly the shock is spreading through supply chains.

In Britain the effect shows up on the shelves as higher prices for phones, laptops and consoles, and manufacturers face an uncomfortable choice between passing on the increases, trimming the specifications of their devices, or doing both at once. Because memory makes up a meaningful share of the cost of a mid range gadget, even a partial rise in chip prices can quickly reach the customer at the till.

The Bank of England takes notice

The squeeze has grown significant enough to feature in the Bank of England's own thinking. The Bank has estimated that the memory chip shortage will add a little over 0.1 percentage points to UK consumer price inflation by the end of the year, a modest figure on its own but an unwelcome one at a moment when policymakers are trying to steer inflation back down toward their 2 percent target.

At its most recent meeting the Bank held its key interest rate at 3.75 percent for the fifth time in a row, with the Monetary Policy Committee split six votes to three, the minority pushing for an increase to 4 percent. Inflation stood at 2.6 percent, and the Bank expected it to peak at around 3.2 percent later in 2026 before gradually easing back down again.

Governor Andrew Bailey said inflation had fallen faster than the Bank had expected, but warned that conflict in the Middle East continued to mean high and volatile energy prices. With energy costs and now memory chips both pulling in the same direction, some in the market have begun to speculate that the Bank could move on rates as early as September rather than wait any longer.

No quick fix in sight

Few expect the pressure to ease soon. Jay Kwon, an equity analyst at J.P. Morgan, said the industry would stay in shortage for multiple years, and the firm's economists warned that the timetable for resolving the imbalance was difficult to set. TrendForce expects elevated prices to persist through 2028, as demand keeps running well ahead of what the world's memory factories can actually supply.

The deeper problem is that building new memory capacity is slow and expensive. Fresh fabrication plants take years to design, construct and bring online, so even a wave of investment today would do little to relieve the market in the near term. In the meantime, the memory earmarked for artificial intelligence is simply not available for the wider consumer electronics industry to use.

For British shoppers, the practical upshot is that the long run of steadily falling gadget prices may be pausing, or even reversing, for the first time in years. The next few inflation readings will reveal how much of the memory crunch is filtering through to the tills, and whether chipflation becomes a lasting feature of the technology market or merely a passing spike.