UK inflation and prices easing amid energy shock fading

What's happened

British firms expect to ease price increases as energy-driven costs fade, while manufacturing activity shows a rebound. Bank of England watchfulness continues as inflation risks persist and rate decisions loom.

What's behind the headline?

Analysis

• The latest Bank of England survey data suggests a moderation in price-setting among firms, with 57% planning price increases, down from 64% in April, indicating a potential easing of inflationary pressure.
• The S&P Global manufacturing PMI has risen to its highest since early 2022, driven by front-loaded orders as firms brace for further cost pressures, though there is caution that this bounce may fade once inventories normalise.
• Markets are watching energy routes and geopolitical developments, as any resolution in the Iran conflict or reopening of the Strait of Hormuz could shape cost dynamics and BoE policy expectations.
• If energy and materials costs stabilise, the BoE may maintain rates with the option of later hikes, depending on how price transmission unfolds across goods and services.
• Consumer sentiment remains sensitive to inflation expectations, with broader confidence data showing mixed signals about demand outlook.

How we got here

The inflation shock from the Iran war has been a key driver of price pressures across the UK economy. Surveys show firms expect slower price rises and a rebound in manufacturing activity as energy costs respond to geopolitical developments. The Bank of England is monitoring prices and margins closely while considering future policy steps.

Our analysis

REUTERS has reported Bank of England survey findings and PMI data indicating easing price pressures but persistent inflation risks. See also Reuters coverage on energy price shocks and manufacturing costs. The Independent and Guardian provide consumer confidence context showing how households grapple with prices and rate expectations, while Bloomberg and other outlets track policy expectations.

Go deeper

• How will inflation expectations evolve if energy costs stay volatile?
• Are manufacturing supply chains stabilising enough to support growth without price hikes?
• What will the Bank of England do next on rates if energy prices rebound?

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