Expectations of Wage Growth Decline

LONDON (Reuters) – Expectations for wage growth among British companies experienced a slight decline in January, alongside decreasing expectations for employment growth. This trend is attributed partly to an anticipated rise in payroll taxes, as indicated by a Bank of England survey released on Thursday.

The Decision Maker Panel (DMP) revealed that businesses projected wage growth of 3.9% over the coming year, marking a decrease of 0.1 percentage points compared to the previous three-month period ending in December.

Earlier on Thursday, the Bank of England’s Monetary Policy Committee projected a slowdown in pay growth, reflecting findings from the DMP survey, and announced a quarter-point reduction in its benchmark Bank Rate, decreasing it to 4.5%.

More than half of the firms surveyed indicated plans to reduce their workforce, with 38% expecting to offer lower wages due to increasing employers’ social security contributions presented in the budget by Finance Minister Rachel Reeves, set to take effect in April.

Almost two-thirds of businesses anticipated decreased profit margins, and 56% planned to raise prices in response to these changes.

Additionally, companies’ expectations regarding consumer price inflation for the upcoming year slightly increased, rising 0.2 percentage points to 3.0% in the three months leading to January. Firms forecasted a price increase of 3.9%, which remained unchanged from December’s expectations.