UK smartphone buyers face higher prices as AI boom squeezes chip supply

The scramble to build artificial intelligence is starting to hit consumers in a more familiar place: the price of a new handset.

AI infrastructure demand is starting to affect smartphone prices

For the past two years, most of the conversation around artificial intelligence has focused on what it can do. Tech companies promote AI assistants. Businesses chase automation. Investors pour money into the computing power needed for bigger models.

Now the economic side-effects are becoming harder to ignore.

Reports show that the AI boom is tightening supplies of key memory components for smartphones. This puts cost pressure on manufacturers and raises the chance of higher prices for consumers, even in the UK.

Why memory chip shortages matter for smartphones

The issue focuses on DRAM and NAND memory. These parts influence a phone's storage, how well it multitasks, and its performance. This includes features like advanced photography and on-device AI tools. These same technologies are also in high demand for AI servers and data centres, where chipmakers can often earn higher margins.

That shift in priorities is starting to reshape the smartphone market.

In May, BT warned that handset prices could rise as AI infrastructure investment pushes up memory costs. Allison Kirkby, BT’s chief executive, said the effects were likely to be felt most clearly in smartphones, as major technology firms buy up the components needed to support their AI ambitions.

Smartphone price forecasts point to higher costs in 2026

Other forecasts point in the same direction. Counterpoint Research has said the average selling price of smartphones is expected to rise by 6.9% in 2026, up sharply from an earlier forecast of 3.6%. According to the firm, the revision reflects rising memory costs and growing supply-chain pressure linked to AI demand.

In other words, this is no longer just a story about inflation in general. It is about a specific supply squeeze in one of the most important parts of modern consumer electronics.

AI data centres are putting pressure on global memory supply

Market researchers are also warning that the pressure may not be brief. TrendForce reported in March that demand for AI servers will likely push memory contract prices up in the second quarter of 2026. This is because cloud providers are locking in supply with long-term agreements. That matters because when large enterprise customers lock in supply, smartphone brands can find themselves paying more or struggling to secure the volumes they need.

The wider impact may already be showing up in industry outlooks. Omdia predicts that global smartphone shipments will drop by around 7% in 2026. This decline is due to memory constraints and geopolitical pressures. It also warned that if memory prices keep rising in the second half of the year, smartphone makers might see higher costs for both low-end and premium devices. At the cheapest end of the market, Omdia expects devices priced below $100 to decline by nearly 31%, highlighting the strain on brands with the thinnest margins.

UK consumers may see fewer smartphone deals and less value for money

For UK consumers, the most immediate impact may not be a sudden spike in flagship prices. It could arrive more subtly.

Manufacturers with rising component costs typically have three choices: absorb the cost, raise prices, or lessen what buyers receive for the same amount. In practice, that can mean weaker promotional offers, less generous retailer incentives, or lower specifications hidden behind familiar price tags.

This is especially true in Britain. The smartphone market there has always had strong competition and a wide range of handsets at various prices. While premium devices attract attention, a large share of the market sits in the mid-range, where buyers are looking for solid performance without paying flagship prices.

Budget and mid-range smartphones could be hit hardest

That part of the market may be the most vulnerable.

Large premium brands usually have better supplier ties, more buying power, and higher profit margins. This helps them manage temporary cost increases more easily. Budget and mid-tier manufacturers have less flexibility. If memory prices keep rising, some may be forced to cut back on model ranges, reduce specs, or scale back aggressive pricing strategies that helped make them competitive in the first place.

The likely result is that UK buyers could see less value for money, especially in the £200 to £500 segment that matters to many households.

SIM only deals and refurbished phones may become more popular

That shift may also change how people buy phones.

If new handsets become more expensive, SIM only deals are likely to look even more attractive. The UK already has a mature SIM only market, and consumer group Which? has highlighted offers available from as little as £5 a month. For people trying to keep monthly costs down, separating the cost of connectivity from the cost of hardware may become an increasingly sensible option.

Refurbished phones could also benefit. As new devices get pricier compared to certified pre-owned ones, more shoppers might find that a one year old phone is a better deal than splurging on the latest model.

The hidden cost of AI could soon reach UK smartphone buyers

The bigger picture is clear. The AI race is not only changing software, search and cloud computing. It is beginning to affect the physical components that underpin everyday technology. For smartphone buyers in the UK, that may mean the next upgrade comes with fewer bargains, a longer wait, or a rethink about whether a brand new handset is really worth it.

The shelves are unlikely to empty overnight, however as AI infrastructure uses more of the world's memory, the hidden costs of artificial intelligence might soon affect consumers directly.