UK inflation expectations hit record high as Iran war drives energy prices up
British households are raising their long-term inflation expectations after the U.S.-Israeli war on Iran pushes up energy prices. The shift adds to pressure on Bank of England policymakers, who watch inflation attitudes for signs that higher prices may become embedded in consumer behaviour.
Highlights
- Bank of England's May survey shows public median inflation expectation for next year rises to 4% from 3.2% in February.
- Five-year inflation expectations climb to 3.9% from 3.7%, reaching the highest level since BoE records began in 2009.
- Jump in energy prices due to the Iran conflict is driving persistent inflation expectations, complicating BoE's task to anchor inflation at 2.0%.
BoE survey points to rising price concerns
As reported by the Bank of England's quarterly inflation attitudes survey, the public's median expectation for inflation over the next year rises to 4% in May from 3.2% in February.Expectations for inflation in five years' time also rise to 3.9% from 3.7%, the highest reading since Bank of England records for the series began in 2009. That level remains well above the central bank's 2.0% target for consumer price inflation.
Policy implications for the UK economy
Bank of England policymakers monitor public inflation expectations closely because they can signal whether price pressures are becoming more persistent in household behaviour and the wider economy.The latest survey suggests the jump in energy prices linked to the Iran conflict is feeding into longer-term views on inflation, a development that could complicate the central bank's effort to keep inflation anchored near its target.
In our earlier article on the UK economy’s 0.1% GDP contraction in April 2026, we outlined how weaker services and production output ended the country’s long stretch without a monthly decline. We noted that persistent inflation and higher interest rates were weighing on consumer spending and business investment, pointing to a tougher backdrop for growth in the months ahead.
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