The UK economy is heading into the autumn with businesses facing an awkward combination of higher inflation, elevated energy costs and borrowing rates that remain well above recent lows.

The Bank of England voted on 17 September to keep Bank Rate at 3.75%, with six members supporting the decision and three preferring a 0.25 percentage point increase. The decision came as UK CPI inflation reached 3.1% in August, above the Bank's 2% target.

Energy prices are at the centre of the latest concern. The Bank said the continuing conflict in the Middle East has pushed crude and refined energy prices higher and made the inflation outlook more uncertain. It expects inflation to rise further over the coming quarters, although the eventual path will depend heavily on how long the energy shock lasts.

For businesses, the issue is not just what happens to interest rates. The Bank's latest business intelligence shows that input costs and consumer prices are continuing to edge upwards, with energy-intensive businesses particularly exposed. Materials including plastics, fertiliser, petrochemical products and some metals have seen significant cost increases, while shipping costs and imported goods prices are also beginning to rise.

At the same time, demand remains uneven across the economy. The Bank reported stronger activity in parts of business services and manufactured exports, with some improvement in business confidence and investment intentions. But consumer spending remains subdued, construction activity continues to fall and both residential and commercial property markets have softened.

The labour market is another important part of the picture. Employment intentions remain broadly flat, while recruitment difficulties are below normal levels. Average pay settlements reported for 2026 are around 3.6%, according to the Bank's latest assessment.

For founders, the environment creates a difficult balancing act. Businesses facing higher costs may need to raise prices, find productivity savings or absorb some of the pressure through margins. But with consumer demand still weak in several sectors, passing every additional cost on to customers may not be straightforward.

Investors are also watching how persistent the inflation shock becomes. Three members of the Bank's Monetary Policy Committee voted for a rate increase this month, highlighting the debate over whether inflation could become more entrenched if high energy prices continue.

The Bank's next rate decision is scheduled for 5 November, leaving businesses with several weeks of uncertainty as they plan budgets, hiring and investment for the months ahead.

How are rising costs and borrowing rates affecting the way your business is planning for the rest of 2026?

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