More good news for the Bank of England as firms expect wage and price pressures to ease
Yet another survey shows that the Bank of England’s interest rate hikes are slowly squeezing inflationary pressures out of the economy.
The Bank of England’s own decision maker panel, which surveys business leaders around the country, showed that firms expect price rises to slow and wages pressures to ease.
In May, firms said they expected to increase prices by 3.8 per cent over the next year, down from 4.2 per cent in April.
Taking the average of the past three months, firms expect prices to rise 3.9 per cent. This brings expected price growth down to its lowest level since September 2021.
The Bank of England’s survey covers prices charged across the whole economy, not just in consumer-facing firms.
There was further good news on wages. Firms surveyed in May expected wages to grow 4.1 per cent in the year ahead, the lowest level since the Bank of England first started asking the question back in May 2022.
On a quarterly basis, expected wage growth was also at its lowest level in just under two years.
“The MPC focuses heavily on the DMP given the unreliability of official ONS labour market data, and will likely take encouragement from the latest figures,” Rob Wood, chief UK economist at Pantheon Macroeconomics said.
The survey suggests rate-setters can start “gradually easing the restrictiveness of monetary policy soon”, he added.
Persistent wage growth has been a major concern for rate-setters as they consider when to start lowering interest rates.
Rate-setters are concerned that high levels of wage growth could fuel persistent inflation, particularly in the labour-intensive services sector. Services inflation still stands at around six per cent.
However, a survey out yesterday showed that input costs in the services sector rose at the slowest pace since February 2021, another sign that inflationary pressures are easing.
Most economists think the Bank of England will be in a position to cut interest rates in August.