UK firms plan smaller price rises, survey shows

British businesses expect to increase prices less quickly in the year ahead ​than they did in April as some of the initial energy price ‌shock caused by the Iran war fades, according to a survey published by the Bank of England on Friday.
The BoE's Decision Maker Panel showed companies in May expected price growth of 4.0% in ​the coming 12 months, down from a more than two-year high of ​4.4% in April though still above the 3.4% expected in February before ⁠the conflict started.
On a three-month moving-average basis, price expectations rose by 0.2 percentage ​points to 4.0%, the highest since February 2025.
The survey of more than 2,000 British companies ​showed 57% of firms expected to increase their prices in response to the energy price shock, down 7 percentage points from April, while an unchanged 68% expect lower profit margins.
Energy prices have risen ​sharply since the start of the U.S.-Israeli war on Iran in late February, ​and the BoE is keen to gauge how much of that increase will be passed on to ‌consumers ⁠before it raises interest rates.
Other surveys have also shown a broad swathe of companies are planning price rises.
Financial markets expect the central bank to keep borrowing costs at 3.75% this month but see one or possibly two quarter-point hikes in interest rates later this year.
The ​DMP survey is ​likely to reinforce the ⁠BoE's view that the labour market is softening, limiting businesses' ability to find customers for more expensive goods and services.
Businesses in ​May said they planned to reduce employment levels by 0.4% over ​the next ⁠12 months - the biggest planned reduction in six months - while expected year-ahead wage growth held at 3.4% in the three months to May, its joint-lowest since regular polling began in July ⁠2022.
"Rate setters ​can probably take some comfort that second-round effects ​through firms' inflation expectations seem muted for now, and they need to contend with weaker job growth," Rob ​Wood, chief UK economist at Pantheon Macroeconomics, said.

-Reuters