British companies are becoming marginally less pessimistic about the pace at which their costs and prices will rise over the coming year, although businesses continue to anticipate inflation
running well above the Bank of England’s 2% target.
The Bank’s latest Decision Maker Panel (DMP) survey, covering the three months to August, found that firms expected their selling prices to increase by an average of 3.8% over the next 12 months. That was a modest reduction from the 3.9% expectation recorded in the previous three-month period to July.
The slight decline suggests that corporate pricing expectations may be beginning to stabilise, even as businesses remain under pressure from higher operating costs and an uncertain economic environment.
Wage expectations, meanwhile, showed no movement. Companies continued to forecast annual pay growth of 3.4% over the next year, indicating that labour costs remain an important source of potential inflationary pressure.
The figures will be closely watched by policymakers at the Bank of England, which has been monitoring companies’ pricing behaviour and wage settlements for signs that inflation could become entrenched.
The challenge has become more complicated following the sharp increase in energy prices linked to the conflict involving Iran. Higher energy costs can feed through into transport, manufacturing, household bills and a broad range of goods and services, potentially slowing the return of inflation to the central bank’s target.
For the Bank, the latest survey offers some modest reassurance but is unlikely to eliminate concerns over underlying price pressures. Businesses still expect to raise prices considerably faster than would be consistent with inflation remaining at 2% over the medium term.
The Bank is widely expected to leave interest rates unchanged this month, as policymakers weigh persistent inflation risks against broader pressures on the UK economy.
The latest DMP data therefore point to a cautious picture: corporate price expectations are edging down, but wage growth and renewed energy-cost pressures continue to complicate the path back to price stability.
