Price Escalation Clause in UK Contracts: What It Means & Example Wording

When to Include a Price Escalation Clause

• In contracts with terms longer than 12 months where inflation could erode the real value of the agreed price
• In supply agreements where raw material costs, energy prices, or labour costs are likely to increase over the contract term
• In service agreements where the supplier's wage costs increase annually and need to be passed on to maintain margin

Example Wording

This example wording is illustrative only. Customise it to your specific circumstances and consider seeking legal advice.

Is a Price Escalation Clause Enforceable in the UK?

Price escalation clauses are enforceable in UK B2B contracts provided they are clearly drafted and the mechanism for calculating the increase is objective and ascertainable. Index-linked clauses (CPI, RPI) are widely used and accepted. Clauses giving the supplier unilateral discretion to increase prices by any amount may be challenged as unreasonable, particularly in consumer contracts. In consumer contracts, unfettered price increase clauses may be deemed unfair under the Consumer Rights Act 2015 — the CMA expects consumers to have a right to exit if prices increase beyond the agreed mechanism.

Common Mistakes

• Using RPI instead of CPI — the UK government has moved away from RPI in favour of CPI as the official measure of inflation. RPI is generally higher and has been criticised for methodological flaws. CPI is now the preferred index for most purposes
• Not specifying what happens if the index is discontinued or rebased — without a fallback, the clause may become inoperable
• Allowing unlimited unilateral price increases without a right for the customer to terminate — this may be considered unfair, particularly in consumer contracts or where the customer has committed to a minimum term