Bank of England finance panel suggests wage growth won’t budge next year, but inflation will fall
Firms expect prices to fall over the coming year but warned that wage growth will remain high, raising concerns about the persistence of inflation.
Data from the Bank of England’s Monthly Decision Maker Panel, which surveys finance chiefs around the country, showed that businesses expect output prices to fall over the next year.
Firms surveyed in the previous quarter suggested that inflation in the year-ahead is expected to be 4.4 per cent, down from 4.5 per cent in the three months to October.
“Expected output price inflation has been gradually falling over the year,” the survey noted.
However, wage growth in the coming year is expected to remain at 5.1 per cent – unchanged from last month.
The Bank of England has warned that policymakers are now more concerned about the “home grown” elements of inflation, such as wage growth.
According to figures from the Office for National Statistics (ONS), average wage growth including bonuses was 7.9 per cent between July and September, down from last month’s upwardly revised figure of 8.2 per cent.
Other surveys also suggest wage growth is still running far too hot to be consistent with inflation coming down to two per cent on a sustainable basis.
In its most recent Monetary Policy Report, the Bank of England suggested that unemployment will have to go higher than it previously thought in order to bring down wage growth.
As a result interest rates will remain higher for longer than markets expect, but the survey showed the impact of the monetary tightening undertaken so far.
In the third quarter, capital expenditure fell by 8.4 per cent, employment by 1.3 per cent while sales fell by 4.6 per cent. By next year, capital expenditure is likely to be 10.4 per cent lower.