UK firms expect to raise prices more quickly as Iran war pushes up costs | Business

Companies in the UK expect to raise their prices more rapidly over the coming months as the war in the Middle East drives up costs, Bank of England research shows.

The Bank’s regular survey of more than 2,000 chief financial officers conducted last month, after the Iran conflict began, shows they now expect to raise their prices by 3.7% over the coming year.

That was a rise from 3.4% in February, while the bosses’ expectation of inflation across the economy has risen from 3% to 3.5%.

The effective closure of the strait of Hormuz has driven up oil and gas prices significantly and led to predictions of wider price rises, as the impact of these higher costs hits industry.

The chancellor, Rachel Reeves, met retail bosses on Wednesday at No 11 Downing Street to discuss the risks of supply shortages and price increases.

She has also come under pressure to cushion the blow of likely rises in household gas and electricity bills before next winter and halt plans for a 5p a litre increase in fuel duty, due to take effect by next March.

Reeves has repeatedly made clear that any help for households will be “targeted”, unlike the costly across-the-board support offered by the Liz Truss government as energy prices soared in the wake of Russia’s invasion of Ukraine four years ago.

The Bank of England’s policymakers will be watching UK companies’ pricing intentions closely, as they weigh up whether to raise interest rates in the coming months from their current level of 3.75%, in the face of higher inflation.

Financial markets are currently pricing in two interest rate rises by the end of the year – a sharp turnaround from expectations of rate cuts, before the war began.

However, the Bank’s governor, Andrew Bailey, has warned that markets may be “getting ahead of themselves” and weak consumer demand may prevent companies passing on cost increases to their customers.

“Businesses consistently say to me that they’re operating in a context of an absence of pricing power,” he told Reuters on Wednesday.

Inflation on the consumer price index targeted by the Bank was steady at 3% in February but is now expected to rise.