UK businesses plan smallest price rises since Feb 2022: BOE
BRITISH businesses now expect to raise prices over the coming year by less than they had planned previously, a Bank of England survey showed on Thursday (Sep 7), offering some reassurance to policymakers that inflation is on course to return to target.
Businesses surveyed in the three months to August expected to raise prices by 4.9 per cent over the coming year, the smallest percentage since February 2022 when Russia invaded Ukraine, and down from 5.2 per cent for the three months to July.
Looking at more volatile single-month data, expectations for output price inflation dropped from 5.5 per cent in July to 4.4 per cent in August, the lowest since October 2021, before the BOE started its current cycle of interest rate rises.
The BOE has increased rates 14 times since December 2021 and, on Wednesday, governor Andrew Bailey told a parliamentary committee the central bank was now “much nearer” to the end of its rate-rising cycle than before. However, he did not rule out raising rates again later this month from their current 5.25 per cent.
Consumer price inflation peaked at a 41-year high of 11.1 per cent in October 2022, but has been slower to fall than in other big economies and was 6.8 per cent in July. Bailey said it might rise slightly in August before resuming its decline.
Economists at Citi said the fallback in businesses’ pricing plans might partly ease the BOE’s concerns that inflation would be much slower to fall than it was to rise, especially as the BOE trusted its own data more than external surveys.
“As such evidence in this direction continues to build, we think this poses increasing dovish risks,” they said.
However, Thursday’s figures – part of the BOE’s monthly Decision Maker Panel survey of more than 2,000 chief financial officers – were not completely reassuring for the central bank, which aims to return inflation to its 2 per cent target by early 2025.
Businesses expect CPI in a year’s time to be 4.9 per cent, down from expectations of 5.4 per cent in July but above the BOE’s own forecast last month of 2.8 per cent for the third quarter of 2024. Businesses see CPI in three years’ time at 3.2 per cent.
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Businesses also expect wages will rise by 5 per cent over the coming year, unchanged from their expectations in July.
Annual wage growth, excluding bonuses, was a record 7.8 per cent in the three months to July, compared with rates of 3 per cent to 4 per cent before the pandemic when CPI was close to its 2 per cent target.
An article by BOE researchers and external academics who had worked on the survey, published on Thursday, highlighted how previous months’ data showed businesses aimed to rebuild profit margins which had been squeezed over the previous year.
While firms mostly achieved higher margins by increasing sales volumes, raising prices also played a role.
“Margin rebuilding could make some contribution to inflation persistence,” they said.
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