- UK firms still expect price rises despite easing fears over energy shock
- More than half of businesses still plan to increase prices following the energy shock.
- Most firms expect profits to come under pressure, but wage growth remains subdued.
UK businesses expect to raise prices less sharply than feared in the wake of the Iran-linked energy shock, although a majority still plan to pass higher costs on to customers, according to new Bank of England data.
The findings suggest inflation pressures in the UK economy may be easing slightly, but concerns over energy prices continue to influence business decisions. More than half of firms surveyed said they expect to increase prices over the next 12 months, highlighting the lasting impact of the recent surge in oil and gas costs.
The shock fades, but not the pressure
The Bank of England's latest Decision Maker Panel survey found that companies expect prices to rise by 4 per cent over the coming year. That was down from 4.4 per cent in April, suggesting businesses are becoming less pessimistic about the inflationary impact of higher energy costs.
However, the broader three-month measure painted a slightly different picture. Firms surveyed between March and May expected annual price growth of 4 per cent, up from 3.8 per cent in the previous three-month period.
The latest figure also remains above the 3.4 per cent price growth businesses expected in February, before conflict in the Middle East disrupted energy markets and pushed oil and gas prices sharply higher.
More than 2,000 finance chiefs from UK businesses took part in the survey between May 8 and May 22.
Oil and gas prices surged in March and April following disruption around the Strait of Hormuz, one of the world's most important shipping routes for energy supplies. Brent crude later eased from its April peak of around $120 a barrel and was trading at roughly $95 a barrel during May.
Higher costs squeeze profits
Despite the moderation in energy prices, many firms continue to feel the effects.
Around 57 per cent of businesses said they expect to raise prices over the next year, compared with just 5 per cent that expect prices to fall.
The survey also suggested that companies are preparing to absorb part of the cost shock themselves. More than two-thirds of respondents said they expect profit margins to come under pressure as fuel, energy and transport costs remain elevated.
At the same time, businesses appear reluctant to fuel a broader wage-price spiral. Fewer than a quarter of firms said they expect wages to increase because of the energy shock, while 19 per cent anticipated lower wage growth over the next 12 months.
The findings indicate that while the worst fears surrounding the recent energy shock may have eased, businesses are still navigating a difficult cost environment, with many continuing to balance higher expenses against pressure from customers and the wider economy.
