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, according to a Bank of England survey. The regular survey of more than 2,000 chief financial officers conducted in March, after the Iran conflict began, shows they now expect to raise prices by 3.7% over the coming year, up from 3.4% in February. The bosses' expectation of inflation across the economy has also risen from 3% to 3.5%.
The effective closure of the Strait of Hormuz has driven up oil and gas prices significantly, leading to predictions of wider price rises. The UK cleaning product group McBride, whose brands include Oven Pride and Clean n Fresh, said on Thursday it would raise prices as a result of “elevated input costs” from the Middle East conflict. Chancellor Rachel Reeves met retail executives on Wednesday to discuss the risks of supply shortages and price increases, and faces pressure to cushion the blow of likely rises in household energy bills and halt plans for a 5p per litre fuel duty increase.
The Bank of England’s policymakers are watching pricing intentions closely as they weigh up whether to raise interest rates from their current level of 3.75% in the face of higher inflation. Financial markets are pricing in two rate rises by the end of the year, a sharp turnaround from expectations of cuts before the war. However, Bank governor Andrew Bailey has warned that markets may be “getting ahead of themselves” and weak consumer demand may prevent companies from passing on cost increases.
Some analysts agree that an economic slowdown is a more pressing concern. Andrew Goodwin, chief UK economist at Oxford Economics, predicted interest rates would remain on hold at 3.75% for a “prolonged period” as consumers cut back on spending. He noted that if pump prices continue to rise, fuel demand may contract and discretionary spending could be squeezed. Inflation on the consumer price index was steady at 3% in February but is now expected to rise.
