Rising National Insurance Costs Set to Drive Consumer Price Increases Survey Reveals

British employers are preparing to increase consumer prices to offset higher payroll taxes, triggering concerns about sustained inflation pressures, according to a recent S&P Global business sentiment survey. The research indicates that approximately 50 per cent of surveyed companies intend to pass the increased National Insurance contributions directly to consumers.

The comprehensive study reveals that 36 per cent of businesses plan workforce reductions, whilst only 9 per cent contemplate wage cuts in response to the NICs changes implemented this April. These findings present a significant challenge for the Bank of England as it navigates decisions on interest rate adjustments.

Bank Governor Andrew Bailey previously observed that the NICs increase was primarily affecting headcount and wage growth rather than inflation. However, the latest data suggests a potential shift in this dynamic, with consumer prices now likely to bear the burden of increased costs.

The labour market has already experienced substantial impact, with the economy shedding 250,000 jobs over the past twelve months. Unemployment has climbed to a four-year peak of 4.6 per cent, with the leisure and hospitality sectors particularly affected.

Business confidence has plummeted to its lowest level since 2022, according to the Institute of Chartered Accountants in England and Wales. Their index dropped to minus 4.2 in the second quarter, marking the weakest reading since the aftermath of the 2022 mini-budget crisis. Export-oriented firms display the most pessimistic outlook, with sentiment turning negative for the first time in nearly three years.

Market observers anticipate the Bank of England will implement its third interest rate reduction in August, lowering the base rate to 4 per cent. While inflation currently stands at 3.4 per cent annually, the Bank projects a rapid decline in 2026, though these price pass-through intentions may challenge this forecast.