UK Firms Expect to Raise Prices by the Least in Three Years

(Bloomberg) -- UK businesses expect to raise their prices by the least in three years — a sign that firms see price pressures remaining contained.

The Bank of England’s survey of chief financial officers showed expected price growth over the next year easing to 3.4% last month, the lowest reading since August 2021.

The figures will be welcomed by the BOE rate-setters who backed an interest-rate cut on Aug. 1, saying “waning wage and price pressures” in previous iterations of the same survey were key to their decision.

The Decision Maker Panel survey found companies expect slightly higher overall inflation at 2.6%, the first increase in the measure in over a year. However, it will be of little surprise to the BOE, which has predicted that inflation will pick up marginally during the rest of the year.

Rob Wood, chief UK economist at Pantheon Macroeconomics, said the survey supports the Monetary Policy Committee’s decision to cut interest rates but gives them “no reason to rush” to another reduction in September.

“The DMP suggests that further disinflation will be slower than it has been to date,” he said.

The BOE said that its survey also showed that the labor market is “continuing to loosen.” Employment growth over the last three months eased to 0.7%, while wage growth over the next year was expected to be 4.1%, unchanged from the previous month.

Over 5% of firms say there were not recruiting in August, up from 3.2% the month before. It’s a level not seen since January, when the UK was just emerging from last year’s recession, and is the joint highest since records began in 2021.

Almost 42% rated the difficulty of recruitment as “about normal,” the highest on record, suggesting labor shortages are starting to ease.

“The fact that CPI inflation expectations are sticky will keep the Bank of England cautious,” said Tomasz Wieladek, chief European economist at T. Rowe Price. “It appears that most of the disinflation effect has already happened. CPI inflation expectations stabilizing at 2.6%, a level significantly above target, is a big challenge to the Bank of England’s below 2% forecast three years ahead.”

(Adds background, analyst comment starting in fifth paragraph.)