Businesses across the UK have been struggling with rising energy costs for years, but recent developments in the Middle East have significantly increased the uncertainty they now face. Our research shows that over 56% of firms feel exposed to geopolitical risk, rising to 80% for firms exporting goods overseas.
Around 20% of the world’s crude oil supply travels through the Strait of Hormuz between Iran and Oman. Its effective closure, as well as reports of attacks on cargo ships, has pushed up oil prices. Earlier this week, oil reached a high of $119 a barrel. Towards the end of February, it was around $70 a barrel.
Sustained increases in energy prices are likely to feed through into higher inflation and a hold on interest rates for longer, as well as a possible increase in the energy price cap for households from July. The Government will rightfully be looking at the impact this could have on the cost of living for households across the UK. Many of the impacts of higher energy costs that are being felt by households are also being felt by businesses. The cost of living and the cost of doing business are two sides of the same coin.
We are in regular contact with the Department for Energy Security and Net Zero to discuss energy costs and the impact on businesses, with our Director of Policy and Insight, Kate Shoesmith, recently joining a meeting with Secretary of State Ed Miliband.
Businesses on fixed energy contracts will not see changes to their prices until their contracts end. However, firms with contracts that are due for renewal are understandably concerned about the prospect of higher prices down the line. The Government and Ofgem must work together to ensure that businesses have access to up-to-date guidance with energy bills, so they can make informed decisions about their arrangements.
Our Quarterly Economic Survey demonstrates how deeply businesses are affected by higher energy costs and the impact it can have. In our most recent survey, 52% of businesses said they were facing pressure to raise prices because of their utility costs. A further increase in energy costs will likely see this pressure rise, similar to 2022, when 72% of firms were under pressure to raise prices. The ripple effects of increased prices will be particularly damaging for SMEs. Even higher energy costs, alongside additional costs businesses are facing, risk creating an increasingly challenging environment in which firms are having to operate.
In February, the BCC published a policy report, Powering Growth: Resetting Energy Costs for Businesses, setting out steps the Government should take to bring down energy costs for businesses. These include funding at least part of the Renewables Obligation on business energy bills – bringing support more closely into line with the relief provided to households in the Autumn Budget 2025. A national business energy advice scheme can also help firms access energy assessments and drive improvements in energy efficiency.
Safeguarding the long-term future for the North Sea is also critical to ensuring that the UK has access to the oil and gas it needs for as long as we remain dependent on oil and gas as part of our energy mix. Central to this must include introducing the Oil and Gas Price Mechanism now to strengthen energy security, as well as drive investment and protect jobs.
Feedback from our Chamber Network shows just how anxious businesses are feeling about this crisis and the financial impact it could have. At a time of such pressures, regulators must act quickly to ensure that businesses are not facing unfair treatment, and take immediate action where this occurs.
Energy costs have been a major challenge for firms in recent years, and the ongoing conflict in the Middle East risks exacerbating this further. This will hit economic growth and weaken business confidence. Firms cannot be left to shoulder these pressures alone. The Government must ensure that businesses are supported to navigate the months ahead.