LONDON, Sept 7 (Reuters) – British companies now expect to raise prices over the next year by less than they had previously planned, a Bank of England survey showed on Thursday, reassuring policymakers that inflation is on track to return to target. .
Companies surveyed in the three months to August expected to raise prices by 4.9% over the next year, the lowest since February 2022 when Russia invaded Ukraine, and down from 5.2% for the three months to July.
Looking at one month’s more volatile data, output price inflation expectations fell from 5.5% in July to 4.4% in August, the lowest level since October 2021, before the Bank of England began its current cycle of interest rate hikes.
The Bank of England has raised interest rates 14 times since December 2021, and on Wednesday, Governor Andrew Bailey told a parliamentary committee that the central bank is now “much closer” to the end of its rate-hiking cycle than before. However, he did not rule out raising interest rates again later this month from their current level of 5.25%.
Consumer price inflation peaked at 11.1% in October 2022, its highest level in 41 years, but was slower to fall compared to other major economies and reached 6.8% in July. It may rise slightly in August before resuming its decline, Bailey said.
Economists at Citi said the pullback in corporate pricing plans may partly ease the Bank of England’s concerns that inflation will be much slower to fall than it rises, especially since the BoE trusts its own data more than external surveys.
“As such evidence continues to mount in this direction, we believe this poses increasing risks,” they said.
Inflation target
However, Thursday’s numbers are part of the Bank of England’s monthly report Decision maker panel The survey of more than 2,000 senior financial officials was not entirely reassuring for the central bank, which aims to return inflation to its 2% target by early 2025.
Businesses expect the CPI in one year to reach 4.9%, down from a forecast of 5.4% in July but higher than the Bank of England’s forecast last month of 2.8% for the third quarter of 2024. Businesses expect the CPI in three years to reach 3.2%.
Companies also expect wages to rise 5.0% over the next year, unchanged from their forecast in July.
Annual wage growth, excluding bonuses, hit a record 7.8% in the three months to July, compared to rates of between 3% and 4% before the pandemic when the Consumer Price Index approached its 2% target.
that condition Researchers from the Bank of England and external academics who worked on the survey, published on Thursday, highlighted how the previous months’ data showed companies aiming to rebuild profit margins that had been squeezed over the previous year.
While companies often achieved higher profit margins by increasing sales volume, raising prices also played a role.
“Rebuilding margin could go some way to sustaining inflation,” they said.
Reporting by David Milliken, Editing by Andy Bruce and Alex Richardson
Our standards: Thomson Reuters Trust Principles.