UK companies expect to raise prices at the fastest pace since records began to offset higher labor costs caused by a tight labor market, according to an influential study from the Bank of England.
Business leaders on the central bank’s decision-making panel in September predicted they would raise prices by 6.6 percent over the next year, up from 6.5 percent in August, the highest since the survey began in 2017.
The findings confirm BoE’s concerns “that companies find it too easy to pass on higher costs to consumers,” said Simon Harvey, head of currency analysis at Monex Europe, a currency firm.
He noted that these concerns have contributed to the central bank raising interest rates by 100 basis points during the past two monetary policy meetings.
The monthly survey of chief financial officers of small, medium and large British companies is being used by the BoE to monitor developments in the economy and supports calls for rate hikes at the November 3 meeting of the bank’s Monetary Policy Committee.
Markets are currently expecting a 100 basis point increase from the current rate of 2.25 percent as the bank struggles to contain UK inflation, which has been high for nearly 40 years. According to market expectations, interest rates are expected to rise to 5.7 percent in June next year.
The survey found that business leaders predict inflation will reach 4.8 percent in the medium term, up from 4.2 percent in the previous month.
Harvey noted that the more aggressive MPC members will view this “deanchoring of medium-term inflation expectations as particularly worrisome”.
Companies also expect wages to rise by a record 5.9 percent in the coming year, up from 5.5 percent in August. They reported that wages rose by 6.5 percent in September, a full percentage point higher than in July.
About 84 percent said they found it more difficult than usual to recruit new employees, down only marginally from 86 percent in August.
The level of overall business uncertainty also increased, with more than two-thirds of respondents reporting their company’s uncertainty as “high” or “very high,” 6 percentage points higher than in August. Companies are less likely to invest in periods of high uncertainty, which can limit growth.
Separate data released Thursday by S&P Global/Cips showed construction activity improved in September, with the output index rising to 52.3 in September from 49.2 in August.
However, Tim Moore, chief economic officer at S&P Global Market Intelligence, which compiles the survey, warned that the modest increase in business activity “was fueled by project delays and easing supply shortages rather than a flurry of new orders.”
“Forward-looking survey indicators deteriorated again in September, with new business volumes coming to a halt and expectations for production growth for the coming year are now the lowest since July 2020,” he said.