British Companies and Inflation Expectations

(Reuters) – British companies expect to raise selling prices by the smallest amount in nearly three years, but wage growth shows no sign of cooling, a survey revealed on Thursday, providing mixed news for Bank of England officials assessing inflation pressures.

The BoE’s Decision Maker Panel, closely monitored by the Monetary Policy Committee, indicated that businesses during the three months leading to August anticipated selling prices to increase by 3.6% over the next year. This is the lowest projection since September 2021 and a decrease from 3.7% previously.

Wage growth forecasts, crucial for the BoE’s monitoring of price pressures, remained steady at 4.1% during the same period, unchanged from July’s survey. Forecasts have maintained between 4.0% and 4.1% since May, suggesting a halt in the decline of wage growth expectations observed over the past 18 months.

Stubbornly high wage growth is a primary concern for the hawks on the MPC, who fear it could embed inflationary pressures into the economy in the long term.

The survey also highlighted a decrease in uncertainty among companies following Prime Minister Keir Starmer’s significant election victory, which has now reached its lowest level since the onset of the COVID-19 pandemic in Britain.

Investors estimate about a one-in-four chance that the BoE will cut interest rates at its September 12 policy meeting, with a rate cut fully anticipated for November.

Last month, BoE Governor Andrew Bailey stated he believed longer-term inflation pressures were easing, but further interest rate cuts would not be rushed as it remains too early to confirm that inflation has been subdued.