UK consumers are likely to face higher prices for many months to come, even if ceasefire talks between the US and Iran bear fruit, according to fresh data and warnings from business groups. Disruption to global shipping, coupled with soaring energy and raw material costs, has driven up expenses for UK companies, with the impact already filtering through to prices at the tills.
Shop Price Inflation on the Rise
Figures from the British Retail Consortium (BRC) show that shop price inflation rose to 1.2% year on year in May, slightly above the three-month average of 1.1%. Furniture and health and beauty products are among the items that have increased most in recent weeks. High oil prices and the prolonged closure of the Strait of Hormuz shipping channel were cited as key factors.
Despite these pressures, customers can still find bargains on TV and audiovisual equipment, as retailers target football fans preparing for the World Cup in the US this summer. Intense competition between supermarkets has also kept food price inflation relatively low at 2.7% in May, below the longer-term average of 3.1%.
Businesses Struggle to Absorb Costs
While some promotions may continue over the summer, the BRC voiced doubts about the broader outlook. Helen Dickinson, the BRC's chief executive, said: 'While retailers work hard to keep prices down, they face significant cost pressures, including higher energy bills and disruption linked to the conflict in Iran. Businesses cannot absorb these costs indefinitely, which risks pushing prices higher in the months ahead.' She called on the government to cut taxes and levies on energy bills and reduce red tape.
A separate report from the British Chambers of Commerce (BCC) found that only 16% of businesses have been left unscathed by the turmoil in the Middle East. Despite signs of a ceasefire, the BCC predicted lasting effects. William Bain, head of trade policy at the BCC, said: 'Even if the current ceasefire soon signals the end of the conflict, the economic reverberations will be felt for many months to come. The geopolitical kaleidoscope has been shaken, and there's no quick fix.'
Widespread Impact on Businesses
The BCC research found that 80% of companies reported an existing or likely future impact from the conflict, with energy price increases, shipping disruption, and rising raw material costs as the most pressing concerns. Manufacturing has been hardest hit, with 68% of firms already affected and a further 23% bracing for future impact. Three-quarters of companies expect their energy bill to rise in the next year, while over a third warned they may not be able to pay.
Like the BRC, the BCC called for government support. Bain said: 'Consumers will get clarity over energy costs soon, but for businesses there's no price cap. While government has provided some relief for high energy users, most UK firms remain vulnerable to volatile global markets. Ministers should consider funding renewable levies on business bills, rolling out a national business energy advice scheme, and strengthening protections against unfair pricing practices.'
A government spokesperson responded: 'We know many businesses are facing difficulties, and the situation in the Middle East is adding to their costs. Our new British industrial competitiveness scheme will help by reducing electricity bills by up to 25% for over 10,000 manufacturing businesses, while our supercharger scheme cuts electricity costs for hundreds of electricity-intensive businesses. Just last week we announced new support for the chemicals and ceramics industries, and we continue to work closely with businesses and trade unions to help them through tough times.'
