UK businesses are planning to raise prices less aggressively than previously feared following recent volatility in global energy markets, according to new data from the Bank of England. However, a majority of firms still expect higher operational costs linked to the continuing energy shock caused by tensions surrounding Iran and disruption in global oil and gas markets.
The latest findings from the Bank of England’s Decision Maker Panel (DMP) survey revealed that British companies now expect prices to increase by 4% over the next 12 months. The figure, based on May’s survey data, marks a slight decline from April’s projection, suggesting that business confidence regarding inflationary pressures may be stabilising.
Despite the modest improvement, price expectations remain significantly higher than levels recorded earlier in the year before geopolitical tensions in the Middle East intensified. Economists continue to warn that elevated energy costs, transportation expenses and weaker profit margins could prolong inflationary pressures across the UK economy.
Bank of England Survey Signals Easing Inflation Expectations
The Decision Maker Panel survey, conducted between 8 and 22 May, gathered responses from more than 2,000 chief financial officers and senior finance executives from businesses across multiple sectors in the UK economy.
According to the survey, firms expect annual price growth of 4% over the coming year. This represents a decrease of 0.4 percentage points compared with April’s single-month reading. However, when measured across the three months to May, businesses still forecast annual price increases of 4%, slightly higher than the previous three-month period.
The figures indicate that while immediate concerns over rapid price escalation may have eased slightly, inflationary pressures remain deeply embedded within the business environment.
Notably, the latest projections are still well above the 3.4% inflation expectation recorded in February, before escalating conflict involving Iran triggered sharp fluctuations in global energy markets.
Iran Conflict Continues to Pressure Energy Markets
The recent instability in oil and gas markets has been closely linked to rising geopolitical tensions in the Middle East, particularly around Iran and the strategically important Strait of Hormuz.
The Strait of Hormuz remains one of the world’s most critical maritime routes for oil and liquefied natural gas exports. Any disruption to shipping activity in the region has historically had immediate consequences for global fuel prices and broader inflation trends.
Oil and gas prices surged sharply during March and April after concerns emerged over supply disruptions and restricted transit routes. During that period, Brent crude oil climbed to approximately $120 per barrel, intensifying fears of another major global energy shock.
Although prices moderated slightly in May, Brent crude continues to trade at around $95 per barrel, remaining significantly higher than pre-crisis levels. Economists say sustained high energy prices are continuing to feed through into transportation costs, manufacturing expenses and consumer prices across the UK.
Majority of UK Businesses Still Planning Price Increases
Despite the easing in expectations compared with April, most UK firms still anticipate raising prices over the next year.
The Bank of England survey found that 57% of businesses expect to increase prices during the next 12 months, while only 5% anticipate reducing prices.
Higher fuel and transportation costs remain among the most significant pressures facing employers. More than two-thirds of surveyed businesses said they expect profit margins to decline as operating expenses continue to rise.
For many firms, passing some of these additional costs on to consumers is viewed as unavoidable. However, the pace of planned increases appears less severe than economists initially feared following the energy market disruption.
Analysts suggest that weaker consumer demand and slower economic growth may be limiting the ability of businesses to impose larger price rises.
Wage Growth Pressures Remain Relatively Contained
One notable aspect of the Bank of England data is the relatively limited impact on wage expectations.
Unlike previous inflationary periods, companies do not appear to be responding to rising costs by significantly increasing employee pay. Fewer than one-quarter of surveyed firms said they expected wages to rise over the coming year, while 19% predicted lower wage growth.
This development could prove important for policymakers at the Bank of England, who have closely monitored wage inflation as a potential driver of longer-term price instability.
Persistent wage growth can create what economists describe as “sticky inflation,” where rising salaries feed back into higher consumer prices. However, the latest survey suggests businesses remain cautious about increasing labour costs amid wider economic uncertainty.
Economic Outlook Remains Uncertain
The survey findings arrive at a critical moment for the UK economy as policymakers attempt to balance slowing growth against ongoing inflation concerns.
Although inflation has moderated from the historic highs recorded during the cost-of-living crisis, households and businesses continue to face pressure from elevated borrowing costs, expensive energy bills and weaker consumer confidence.
The Bank of England has maintained a cautious stance on interest rates in recent months, with investors closely watching economic data for signs of whether inflationary pressures are easing sustainably.
Economists believe the latest survey may offer some reassurance that the recent energy shock linked to Iran has not triggered a dramatic escalation in business pricing expectations. Nevertheless, the continued intention among most firms to raise prices suggests inflation could remain above the Bank’s long-term target for some time.
Business leaders have also warned that any further escalation in Middle East tensions or renewed disruption to global shipping routes could rapidly reverse the recent improvement in market sentiment.
Rising Energy Costs Continue to Impact UK Economy
The UK economy has faced repeated inflationary shocks over the past several years, beginning with the global energy crisis triggered by Russia’s invasion of Ukraine and continuing with ongoing geopolitical instability in the Middle East.
Higher oil and gas prices have increased costs for manufacturers, retailers, transport operators and households alike. Sectors heavily reliant on fuel and imported materials remain particularly vulnerable to global supply disruptions.
The Bank of England’s Decision Maker Panel survey is widely viewed as an important indicator of future inflation trends because it captures the expectations of businesses responsible for setting prices, wages and investment decisions across the economy.
With global energy markets remaining volatile, economists expect businesses and consumers to continue facing uncertainty throughout the remainder of the year.