Strict rules on baby food advertising are driving up costs for parents in the UK, the competition watchdog has found, as it seeks to tackle “historically high” prices for the products.

Manufacturers of baby food are prohibited from advertising price reductions, which “leads to a weakening of price competition,” the Competition and Markets Authority (CMA) said on Friday. The reason given is concerns that parents are paying too much for the product.

The regulator also said it was examining whether rules on the labelling and marketing of infant formula were being “effectively enforced”.

The CMA launched a major investigation into “historically high” baby food prices earlier this year; the average price of a product had risen by 25% over a two-year period.

On Friday, the CMA said it would not pursue this investigation further, but instead would prepare recommendations for the government on regulatory reform as soon as possible.

The results of the study showed that parents and educators are not sufficiently informed by suppliers to make informed purchasing decisions. Many would therefore not switch from their first choice to cheaper alternatives even if prices increased.

The CMA also found that parents could save more than £500 in their baby’s first year by switching to cheaper infant formula.

To conduct an in-depth market investigation, the CMA would need to select a panel of experts from its panel members to examine the issue independently of the work already done. It can sometimes take up to a year to produce a preliminary conclusion, and up to 18 months to produce a full report.

The UK infant formula market is dominated by Danone, which owns the Aptamil and Cow & Gate brands, and Nestlé, the maker of SMA. Reckitt, a FTSE 100 consumer goods company that produces the Enfamil brand, is another player in the market.

The CMA said it had already identified significant concerns about the conduct of manufacturers and the current regulatory framework for baby food, which could best be addressed by continuing the market study and issuing recommendations, rather than by conducting a more comprehensive investigation.

Leading doctors and nurses, including the Royal College of Midwives, are calling for a solution to the situation, warning that soaring baby formula costs are leading to an infant hunger crisis and endangering the health of babies from low-income families.

Meanwhile, there are reports of customers stealing food to feed their families as prices have skyrocketed amid the cost of living crisis.

The CMA concluded that “price competition appears to be weak” and that some manufacturers had been more successful in raising brand awareness and influencing decisions, despite rules requiring all formulations to meet similar compositional requirements.

It was said that these were exacerbated by the difficult circumstances; for clinical reasons, decisions about infant formula were often made first by parents.

It goes on to say: “Not only are existing customers not switching brands, but they also generally do not choose the cheaper alternatives when choosing an infant formula brand for the first time because prices have increased.”

The regulator found that many parents and carers are “naturally not thinking about comparing products and prices” soon after the birth of a child and the decision to bottle feed is made in difficult circumstances. Once a baby is happy with the chosen formula, parents are “reluctant” to switch, making it harder for smaller manufacturers to attract new customers in a market constrained by regulations.

Iceland’s chairman, Richard Walker, had previously strongly denounced the “exploitation” of young parents and called for a price cap on baby food.

The CMA is expected to publish an interim report in October.

A Danone UK spokesperson said: “Danone advises that the Competition and Markets Authority has decided not to take a market investigation at this stage. We will continue to work with the CMA on their market investigation and ensure that parents are supported as much as possible.”

“We will continue to work constructively on how we can continue to offer innovation and added value to parents. In Danone’s experience, the UK infant formula market is competitive and dynamic.”

A Nestlé spokesman said: “We will continue to work constructively with the CMA as it continues to investigate the market findings.”