The Governor of the Bank of England said many businesses were reducing their headcount to avoid passing higher energy costs on to their customers.

Speaking at the International Monetary Fund’s annual meetings in Bangkok, Mr Bailey said: “When I go around the country, I do a lot of talking to businesses. There’s a very big focus on cost-cutting and a very big focus on the difficulty of passing through (higher energy prices).”

He said there was “subdued” evidence that inflation caused by higher oil and gas prices was spilling over into prices across the economy and creating a broader inflationary problem.

Mr Bailey added: “Firms are clearly squeezing margins as well as cost-cutting”, and “the longer the energy situation goes on”, the more likely it is that companies will begin to raise their prices to protect profit margins.

His comments come ahead of the Bank of England’s Monetary Policy Committee meeting early next month, when it will decide whether to raise interest rates to combat inflation, which has risen to 3.1% this year. New figures suggest it could hit 3.4% when September’s figures are released next week.

The nine-member committee has been split between a minority of three policymakers, who have called for the base rate to rise to 4%, and the rest, who want to wait and see whether wages and other prices are affected by the US-Iran war.