A monthly survey conducted by the Bank of England shows that UK businesses are expecting inflation and wage growth will ease. This is good news for policymakers as they prepare to make the decision on interest rates later in the month.
According to the August Decision Maker Panela closely followed survey of UK Chief Financial Officers, published Thursday, output prices are expected increase by 4,9% over the next twelve months. This figure is based on the rolling three-month average and represents a drop of 0.5 percentage point from July. It’s also well below September’s peak of 6.6%.
The average wage growth forecast also dropped to 5.1 percent, continuing the downward trend that began with a peak of 6 percent at the end 2022.
James Smith, a ING economist, said that the data was “good news” to the rate-setting committee of the central bank. He added that with two weeks until the next Bank of England decision, it is becoming clear that the rate-hike cycle has reached its peak. The latest Decision Maker Panel statistics have given this story more ammunition. The survey revealed that the outlook for output price growth as well as wage growth is significantly lower than the 7.4 percent and 6.9 percent reported in the last 12 months.
Separately, a separate survey of recruiters published by KPMG on Friday and the Recruitment & Employment Confederation also indicated a cooling in the labour market. The measure of inflation for starting salaries in the survey was at its lowest level since March 2021. Hiring activity has also slowed dramatically, and recruiters say redundancies are driving candidates to seek work.
The findings are based on comments made by Andrew Bailey, BoE governor, this week when he indicated that an additional interest rate increase may not be needed.
“The question is now, as headline inflation falls, . . Will we continue to see inflation expectations drop? . . . He told MPs that the interest rates are now “much closer” to their previous peak.
Markets still expect that the central bank will raise interest rates this month by a quarter-point from 5.25 percent.
In the BoE survey, more than half of companies still have problems with recruitment, which has contributed to the recent wage increases. However, this is down from 70% of chief financial officers in the beginning of the year.
KPMG/REC’s survey found that competition for workers was fierce in several sectors, including hospitality and accounting.
The Office for National Statistics published data on Thursday that showed further evidence of the cooling of the labour market. The data showed that 10% of companies reported that their hourly wages increased from month to month in July. This is down from 14% in April.