UK firms plan largest price hikes in two years while wage growth remains subdued

Bank of England surveys reveal that the ongoing energy price shock, triggered by the war in Iran, has not yet driven up wage demands among UK firms, even as businesses plan their largest price hikes in over two years. Anxiety is mounting among consumers and companies amid these pressures, according to the central bank's latest data.

The surveys, detailed by Bloomberg Economics, show firms preparing significant price increases—the biggest since early 2024—while wage growth remains subdued despite soaring energy costs from Middle East tensions. This disconnect suggests the energy crisis isn't immediately translating into labor market pressures, offering some reassurance to policymakers watching for inflationary spirals. However, consumer and business confidence is fraying, which could complicate the economic outlook.

In a related warning, Sarah Breeden, the Bank's deputy governor for financial stability, cautioned that sky-high asset prices, including share values at all-time highs, fail to account for the substantial risks pervading global markets. As reported by City A.M. and Central Banking, Breeden told the BBC that "there's a lot of risk out there," predicting an eventual market adjustment as investors grapple with geopolitical turmoil. Markets have already dropped over eight percent in the past month due to the Iran conflict, yet Breeden indicated prices haven't hit bottom given ongoing economic headwinds.

The Bank's Financial Policy Committee has previously highlighted how the US-Iran war interacts with UK vulnerabilities, weighing on growth, stoking inflation, and tightening financial conditions. Rising Gulf tensions arrive atop already elevated global risks, with the financial system proving resilient so far but under strain. Breeden expressed particular concern over the "likelihood" of multiple shocks hitting simultaneously, such as macroeconomic disruptions eroding confidence.

This combination of muted wage response to energy shocks and overvalued assets underscores broader uncertainties for the UK economy. Around 1.3 million households face higher mortgage costs as a direct fallout from the war, amplifying pressures on families and spending. Businesses and households are directly affected, with potential market corrections threatening investor wealth and corporate funding.

What happens next remains fluid: the Bank anticipates market recalibrations, while monitoring whether energy-driven inflation eventually fuels wages. Policymakers will scrutinize upcoming data for signs of wage-price feedback loops or sharper financial tightening. These developments matter for everyday Britons navigating costlier energy and borrowing, as well as for global markets intertwined with UK stability.