UK businesses price rise expectations ease as energy shock fades
British businesses expect to raise prices more slowly over the next 12 months than they did a month earlier, signalling some relief from the initial energy cost shock linked to the Iran war. The latest Bank of England survey shows expected price growth in May remains above the level seen before the conflict began, even as the outlook moderates from April.
Highlights
- Bank of England's May Decision Maker Panel shows UK businesses expect price growth of 4.0% over 12 months, down from April's 4.4%.
- Three-month moving-average price expectations rose to 4.0%, the highest level since February 2025, remaining above pre-conflict levels.
- Year-ahead wage expectations held steady at 3.4% in May, matching their joint-lowest level since July 2022.
BoE survey points to softer pricing plans
According to Reuters, the Bank of England's Decision Maker Panel shows companies in May expect price growth of 4.0% over the coming 12 months, down from 4.4% in April, which was the highest reading in more than two years.The latest figure still sits above the 3.4% expected in February before the conflict started. On a three-month moving-average basis, price expectations rise by 0.2 percentage points to 4.0%, the highest level since February 2025.
Businesses' wage expectations are steadier than pricing plans. Expected year-ahead wage growth holds at 3.4% on a three-month moving-average basis in May, matching its joint-lowest level since the polling series began in July 2022.
Implications for UK inflation outlook
The survey suggests the pass-through from the early energy price shock is easing, which may help limit further pressure on consumer inflation if businesses follow through with slower price increases.At the same time, pricing expectations remain elevated relative to pre-conflict levels, indicating cost pressures in the UK economy have not fully disappeared. The combination of softer price plans and stable wage expectations offers a mixed but slightly calmer signal for the inflation outlook.
In our earlier coverage of the Middle East energy shock and its impact on UK inflation expectations, we explained that surging gas prices were raising fears of more persistent inflation via second-round effects. We noted that higher household and business expectations could feed into company price-setting even if wage pressures stay softer, strengthening the case for a tighter Bank of England stance if the conflict-driven supply risks linger.
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