UK firms are finally becoming more sanguine about inflation, a boost for the Bank of England as it tries to bring prices back to target.
(Bloomberg) — UK firms are finally becoming more sanguine about inflation, a boost for the Bank of England as it tries to bring prices back to target.
A BOE survey of executives found companies expect consumer prices to be rising by 3.3% three years from now, the lowest reading in least 15 months and down from 3.7% in June.
The figures came hours after the BOE delivered a 14th straight interest-rate increase in its fight against inflation, which remains almost four times the 2% target.
Three-year CPI expectations hovered around 4% last year but have softened in recent months. Projections for the year ahead were also down last month, with business leaders predicting inflation of 5.4%.
That is still incompatible with Prime Minister Rishi Sunak’s goal of halving inflation by the end of the year — to meet that target, CPI would have to average around 5.3% in the fourth quarter.
Read more: BOE Lifts Rates to 5.25%, With Warning Policy to Stay Tight
The reduction appears to have been driven by hopes that wage pressures — which have been severe as employers were forced to fight for talent in a tight labor market — will soon ease.
Expected year-ahead wage growth decreased to 5.2% in the three months through July. Unit cost growth was running at 9.4%, but is expected to moderate to 6.7% in the coming year.
A gauge of corporate pricing power also eased, with firms expecting to increase output prices by 5.2% over the next 12 months — down from 5.3% in June.
Businesses were not ready to accept victory over inflation yet, as 53% said the overall level of uncertainty facing their business was “high or very high” — up from 47% in June.
“This contradicts the clear downward trend in the series since September,” the BOE said, noting that price uncertainty in particular “remains at relatively high levels.”
Read more:
- BOE Expectations to Be Unmet as Disinflation Tightens Policy
- BOE’s Bailey: Policy Is Working to Bring Inflation Down (Video)
- BOE Addition of ‘Restrictive’ Hints at Higher Rates for Longer
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