UK Firms Hike Prices as Iran War Inflates Costs: BoE Survey

UK firms are expecting to raise prices more quickly over the coming months as the war in the Middle East drives up costs, according to a new Bank of England research survey.

The Bank's regular poll of more than 2,000 chief financial officers conducted last month, after the Iran conflict began, shows they now expect to increase their prices by 3.7% over the next year.

This marks a significant uptick from previous forecasts, highlighting the growing inflationary pressures impacting businesses across the country. The findings underscore the broader economic impact of the ongoing geopolitical tensions in the region.

"Companies are really feeling the squeeze from higher input costs stemming from the Iran situation," said Sarah Hewin, chief economist at Standard Chartered. "Their response is to pass those costs on to consumers through faster price increases.

The Bank of England data shows that CFOs are now anticipating their selling prices to rise by an average of 3.7% over the coming 12 months - up from 3.2% in the previous survey conducted in December.

This marks the highest forecast for price rises recorded by the central bank since it began the quarterly CFO survey in 2018. The survey also found that investment and hiring intentions remain strong despite the economic uncertainty.

"Businesses are having to adapt quickly to the new reality of higher costs," said Tom Stevenson, investment director at Fidelity International. "The Iran conflict is putting significant pressure on profit margins, forcing firms to pass those costs onto consumers through price hikes.

The Bank of England has signaled that it may need to raise interest rates further to rein in inflation, which is already at a 40-year high of 10.1%. The central bank hiked rates by half a percentage point last month, its largest increase in 27 years.

However, policymakers face a delicate balancing act, needing to cool price pressures without tipping the economy into recession. The ongoing global uncertainties, exacerbated by the Iran situation, are creating significant challenges for businesses and households alike.