UK firms have warned that food inflation could jump as high as 7% this year as they raised their inflation outlook for the next 12 months, according to data from the Bank of England. The central bank's survey also revealed that the ongoing conflict in the Middle East has 'eroded' confidence that the economy will improve later in 2026.
Bank of England Survey Highlights Rising Price Expectations
The Decision Maker Panel (DMP) survey, which gathers insights from finance chiefs across UK companies, showed that businesses expect to increase their prices by an average of 3.8% over the next year. This figure is 0.3 percentage points higher than the prediction made in the three months to March, underscoring a deteriorating outlook.
Almost two-thirds of bosses (64%) indicated they plan to adjust to the recent energy shock by raising prices in the coming year. The survey, covering the three months to April, paints a picture of persistent inflationary pressures.
Middle East Conflict Adds to Uncertainty
Bank officials noted that the Middle East conflict has further dampened business sentiment. Separate research conducted by the Bank's agents across the UK found that companies are worried about the conflict's potential impact on demand, supply chains, and input costs. However, apart from a small number of firms directly trading with the region, most reported no significant effects on output or activity so far.
Despite this, businesses expressed fears that food inflation is likely to rise through 2026, potentially reaching 6% to 7%, rather than declining as previously anticipated. Other sectors also voiced concerns over higher transport and energy costs, which could feed into broader price increases.
Implications for the UK Economy
The findings suggest that inflationary pressures remain stubbornly high, driven by energy price spikes and geopolitical tensions. The Bank of England will likely factor these developments into its monetary policy decisions, as it seeks to balance controlling inflation with supporting economic growth. The DMP survey serves as a key indicator of business pricing intentions and overall economic confidence.
