Inflation expectations among UK businesses have climbed to their highest level in more than two years, as the economic fallout from the Middle East conflict reshapes outlooks for prices, interest rates and growth.
New data from the Bank of England shows firms now expect inflation to reach 3.5 per cent over the next 12 months, up from 3 per cent previously and marking the highest year-ahead forecast since late 2023.
The shift reflects a sharp change in sentiment following the surge in energy prices triggered by the Iran conflict, with oil and gas costs rising significantly amid disruption to global supply routes.
Alongside higher inflation expectations, businesses are now anticipating far fewer interest rate cuts than previously forecast.
Before the conflict, financial markets had expected multiple reductions in borrowing costs over the next year. However, firms now believe there could be just one rate cut in the next 12 months, and only two by 2029, as persistent inflation limits the scope for monetary easing.
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