UK Companies Expect to Raise Prices Faster Due to Iran War Energy Costs, According to Bank of England Survey

A recent survey from the Bank of England asked more than 2,000 British companies what they plan to do with their prices over the next 12 months, and the answers show growing pressure from the war in the Middle East. Businesses now expect to increase the prices they charge customers by an average of 3.7% in the coming year. That's the fastest expected rise in nearly two years and a noticeable jump from what they said just a month earlier, before the Iran conflict escalated. They also predict that overall prices for everyday goods and services (what we call consumer inflation) will average about 3.5% over the next year – half a percentage point higher than before, marking one of the biggest monthly changes in expectations in recent years.

The main cause is the sharp increase in energy prices (oil and gas) triggered by the war, which started affecting markets in late February/early March 2026. Companies are facing higher bills for fuel and power, and many believe they will need to pass at least some of those extra costs on to shoppers by charging more for products or services. At the same time, firms are not expecting wages (pay for employees) to rise as quickly as in the past – the lowest forecasts since this tracking began in 2022. Instead of adding staff, many now plan to reduce their workforce slightly over the next year.

The Bank of England is paying very close attention to these plans because if companies successfully raise prices a lot, it could keep inflation higher for longer, making it harder to bring it back down to the target level of around 2%. Governor Andrew Bailey has said that businesses can't always pass every cost increase fully to customers, but some of the energy-related rises are likely to show up in shops and on bills. Financial markets have reacted by betting that the Bank will need to raise interest rates twice this year to help control prices. Before the war, inflation had been heading toward the target, but now forecasts suggest it could climb closer to 3.5% in the middle of the year. Economists note there is a risk of "second-round effects," where higher price expectations among businesses and households feed into even more inflation. In everyday terms, this survey highlights how a conflict far away can quickly lead to higher costs at home, affecting what families pay for goods and influencing decisions on jobs, wages, and borrowing.