UK Firms Expect Price Hikes
UK Businesses Still Expect Price Rises Despite Slight Easing in Inflation Pessimism
Anonymous
Key Points
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The Decision Maker Panel survey questioned 2,086 chief financial officers between May 8 and May 22, and firms reported that the prices they charge had already risen by 3.8% in the year to May.
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While the headline one-year price expectation eased, the three-month moving-average measure showed price growth expectations at 4.0%, up from 3.8% in the prior three-month period—an important nuance in the data.
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Brent crude’s swing is tied directly to the energy shock: prices surged after the (effective) closure of the Strait of Hormuz, peaking at around $120 a barrel in April before easing to roughly $95 during May.
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More granular sentiment shows limited downside pricing expectations: about 57% of firms expect to increase prices over the next 12 months, while 5% expect to lower prices.
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Business wage expectations are not just steady but near the bottom of the series: year-ahead wage growth held at 3.4% on a three-month moving-average basis in May, matching the “joint-lowest level” since the polling series began in July 2022; separately, BOE policymakers were described as expected to hold the key interest rate at 3.75% at their meeting later that month.
UK businesses still expect to raise prices by 4% over the next 12 months, according to a new Bank of England survey — down from 4.4% in April but well above the 3.4% expected before the April energy shock Hellenic Shipping News. The survey, which questioned 2,086 chief financial officers between May 8 and May 22, found that firms have already raised the prices they charge by 3.8% in the year to May Largs and Millport News.
The modest easing offers some relief after April's shock. But a three-month moving average — a smoother measure that cuts out month-to-month noise — actually ticked up to 4.0% from 3.8%. That suggests price pressures are not fading as fast as the headline number implies Hirunews.
How the Hormuz Shock Sent Prices Surging
The chain reaction started in early April 2026. The effective closure of the Strait of Hormuz — the world's most critical oil transit route — sent Brent crude surging to around $120 per barrel. UK firms reacted immediately, pricing in higher fuel, energy, and transportation costs North Norfolk News.
By May, Brent crude had eased to roughly $95 per barrel as tensions cooled. But that is still far above February's pre-conflict levels. Businesses are struggling to unwind the "just-in-case" price hikes they built in during the panic — a pattern economists call asymmetric pricing, where prices rise fast but fall slowly Alloa Advertiser.
Most Firms Plan Price Rises, but Margins Are Shrinking
About 57% of firms in the survey expect to raise prices over the next 12 months. Only 5% expect to cut them Hellenic Shipping News. That lopsided split shows how little downward pricing pressure exists in the UK economy right now.
Yet many of those same firms also expect lower profit margins. Higher fuel and transport costs are eating into what businesses earn on each sale. They are raising prices, but not by enough to fully cover their rising costs. That means businesses — not consumers — are absorbing part of the shock Largs and Millport News.
Wage Growth Hits Its Lowest Point Since 2022
One piece of good news: wages are not spiralling upward alongside prices. Year-ahead wage growth expectations held at 3.4% on a three-month moving average in May — the joint-lowest level since the survey began in July 2022 Hirunews. A wage-price spiral, where rising pay pushes prices higher still, has not materialised.
That is a key data point for Bank of England policymakers. It suggests that workers are not demanding big pay rises to compensate for higher living costs. For now, the inflation problem appears to be driven by energy and supply costs, not by a broader overheating of the economy North Norfolk News.
Bank of England Faces a Tricky Rate Decision Ahead
The Bank of England is widely expected to hold its key interest rate at 3.75% at its upcoming Monetary Policy Committee meeting Alloa Advertiser. The May survey data gives policymakers a mixed signal: headline expectations are easing, but the three-month trend is still moving in the wrong direction.
The central bank's 2% inflation target still feels distant. Firms expected prices of roughly 3.4% before the conflict. Now even the "improved" May reading is 4%. Until that gap closes, the Bank has little room to cut rates — even as businesses warn that margin compression could weigh on growth through the rest of 2026 Hellenic Shipping News.
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