According to a Bank of England survey, although British businesses scaled back their plans for price increases in February, overall intentions for price and wage increases are still high. However, this survey is unlikely to end policymakers’ disagreements about the inflation outlook.
The Monetary Policy Committee of the Bank of England has been divided for a number of months on how much higher interest rates must go before double-digit inflation returns to the committee’s 2% objective and how long-lasting underlying inflation pressures will remain.
The average price increase anticipated by businesses questioned in February was 5.4% for the next year, down from 5.8% in January and the smallest increase anticipated since February 2022, when Russia’s invasion of Ukraine led to a spike in oil prices.
The same as in January, businesses expect to increase pay by 5.7% over the following year. The index last fell in August.
Some policymakers may view this as proof that inflation is firmly on the decline and will continue to do so as the economic fallout from prior interest rate increases spreads.
The size of the anticipated price and wage increases, meanwhile, is still around twice what it was prior to the COVID-19 epidemic, when inflation was close to its 2% target.
Contrary to the BoE’s prediction made last month that inflation would fall below its 2% objective by the second half of next year, businesses said they expected consumer price inflation to decline to 5.9% in a year and 3.4% in three years.
In a speech on Wednesday, Governor of the Bank of England Andrew Bailey expressed uncertainty about whether the central bank would need to raise interest rates further and that decision would rely on how wage and price pressures were perceived by decision-makers.
Markets anticipate that the BoE will increase rates from 4% to 4.25% later this month, with rates peaking at 4.75% in the second part of the year.
For the period of February 3 through February 17, 2,462 chief financial officers responded to the BoE’s monthly Decision Maker Panel poll.
