Why the 2026 energy crisis is different for the UK

The crisis in the Middle East that started earlier this year has had a sharp effect on global oil prices, but Britain’s businesses are reacting differently to the previous energy crisis in 2022.

Before the disruption to shipping through the Strait of Hormuz, oil prices were at around $72 per barrel. At the war’s pre-ceasefire peak, oil prices had soared to $120 per barrel.

New data from the Institute for Fiscal Studies (IFS) has found that while many have drawn comparisons with this year’s energy crisis and the crisis caused by the Russia-Ukraine war in 2022, there are key differences in how businesses in the United Kingdom are responding this time around.

The IFS has compared businesses that use energy intensively with similar businesses that do not, and found that in the first two months of this year’s crisis, cost increases related to the energy shock have been concentrated in a narrow set of industries than in 2022.

Additionally, those companies exposed to the energy crisis have been more likely to raise their prices and pass on the cost to consumers, with less of them showing signs of financial distress.

Resilient to wider economic distress

During the 2022 energy crisis, wholesale gas prices quadrupled within months, having a significant impact on expenses for companies across the broader economy.

Today’s disruption is focused mainly on oil prices, which fewer businesses make direct use of, and the back-and-forth ceasefires have allowed some relief to shipping. These factors mean that UK businesses have generally felt this shock less than the 2022 crisis.

The IFS said that this year’s crisis has seen most industries, more energy-intensive firms have seen less of a change in input costs, but a small group of industries are bearing most of the pressure.

Additionally, while companies in the UK have responded by adjusting their prices accordingly, much fewer have taken hits to their forward-looking margins so far than in the 2022 crisis.

The data suggests that exposed firms are generally treating this crisis as more temporary and are building up inventories instead of adjusting production processes.

“So far, we have not seen signs of widespread financial distress among more-exposed firms across the economy,” the IFS said.

“On the evidence to date, in the initial months of the crisis the oil supply disruption has therefore raised costs and prices with few direct implications yet for the wider real economy, at least in terms of firms’ input and financial choices.”

Little inflationary pressure domestically

The Bank of England recently announced it would keep rates level, as there was little pressure domestically to hike rates even as a result of the energy shock related to the crisis in the Middle East.

Commenting on the decision, KPMG UK Chief Economist Yael Selfin said that while the risk of a rate hike remains, the case for keeping rates unchanged has strengthened.

“Inflation has undershot the Bank’s previous forecast, wage growth has continued to moderate, and business surveys point to softer pay settlements and inflation expectations,” Selfin said.

“Together, these developments strengthen the case for keeping interest rates unchanged, with little evidence so far that the recent energy shock has led to broader, more sustained domestic inflationary pressures.”

Selfin said that looking ahead, the key factor that will influence the Bank’s September meeting is likely to be developments in energy prices.

“The longer energy prices remain elevated, the greater the risk that higher costs begin to feed through into wages and pricing decisions.”

“However, current domestic indicators continue to move in the opposite direction, and we see little risk of underlying inflation pressures materially strengthening between now and the next MPC meeting,” she said.

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