Business

UK businesses predict record price increases will offset higher wage bills


British businesses are expected to increase prices at the fastest pace since records began to offset higher wage costs due to the labor market, according to an influential Bank of England survey. tightening action.

Business leaders on the central bank’s decision-making board forecast in September that they will increase prices by 6.6% next year, up from 6.5% in August, the highest level since The survey started in 2017.

Confirmation results BoE “There is concern that companies are finding it too easy to pass on higher costs to consumers,” said Simon Harvey, head of forex analysis at Monex Europe, a foreign exchange firm.

He noted that these worries contributed to the central bank raising interest rates by 100 basis points at the past two monetary policy meetings.

The monthly survey of UK CFOs from small, medium and large businesses is used by the BoE to monitor economic developments and support the case for a rate hike at its 3rd meeting. Bank November. Monetary Policy Committee.

Line graph of Expected Annual Output Price Inflation for the next year, 3-month rolling average, % shows UK businesses expect prices to rise next year

Markets are now pricing the composite up 100 basis points above the current 2.25% rate as the bank battles to rein in inflation in the UK, a near 40-year high. Interest rates are expected to rise to 5.7% in June next year, in line with market expectations.

The survey found that business leaders expect inflation to hit 4.8% over the medium term, up from 4.2% in last month’s survey.

Harvey noted that the more hawkish members of the MPC would see this as “a reduction in medium-term inflation expectations of particular concern”.

Businesses also expect wages to grow by a record 5.9% next year, up from 5.5% in August. They reported that wages rose 6.5% in September, one percentage point higher than in July.

About 84% said they found it harder than usual Recruiting new employeesonly slightly down from 86% in August.

The overall level of business uncertainty has also increased, with more than two-thirds of respondents reporting that concern over their business is “high” or “very high”, higher than 6 percentage points from August. Firms are less likely to invest in periods of high uncertainty, which could limit growth.

In a separate survey of 5,200 companies conducted by the British Chambers of Commerce, nearly 40% of businesses warned that they expected their profits to fall over the next 12 months. This is the worst level since the peak of the Covid crisis in 2020.

Just one-third of companies reported increased domestic sales, down from 41 percent in the previous quarter, while more than four-fifths of companies said inflation remained a growing concern. Nearly two-thirds predict their own prices will rise in the coming months.

BCC said the survey, conducted ahead of the government’s energy support package for companies and its Small Budget, showed structural business conditions and weakening confidence from the second quarter.

One in three companies reported a decrease in cash flow over the past three months, while less than half expect their revenue to increase over the next 12 months. The BCC said the outlook was particularly bleak for the retail and wholesale sectors, which were in the second quarter of negative territory.

Shevaun Haviland, CEO of BCC, said the findings “paint a worrying picture of the performance of many companies in the UK”.

“Some companies have told us that they have been forced to cancel viable projects due to rising costs,” she said. “The current volatility in financial and currency markets must be addressed quickly to return stability to the economy and give business certainty to plan.”

Separate data released by S&P Global/Cips on Thursday showed activity in the construction sector improved in September, with the output index rising to 52.3 in September, up from 49.2 in August.

However, Tim Moore, chief economist for S&P Global Market Intelligence, which compiled the survey, warned that the modest increase in business activity “was fueled by delayed projects and a decline in business activity.” reduce supply shortages, not new orders.”

“The forward-looking survey indexes turned worse in September, with new business volumes stalling and output growth expectations for next year the weakest since July 2020,” he said. ,” he said.

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