UK Firms’ Price and Wage Expectations Edge Down in Boost for BOE

UK businesses expect to hand workers slightly smaller pay rises and hike prices by less over the next 12 months, an encouraging sign for Bank of England officials who remain wary over elevated expectations.

On average over the fourth quarter firms polled by the central bank expected wages to rise 3.7%, down 0.1 percentage points from the three months through November. They expected to increase their own prices by 3.6%, also 0.1 points lower on the previous period.

BOE rate-setters have been concerned over stubbornly high wage and price expectations after a fresh surge in inflation last year to almost double its 2% target. However, price pressures have eased quicker than the BOE projected in recent months and measures at the budget are expected to help bring down inflation to close to 2% by the spring.

The BOE’s Decision Maker Panel survey of chief financial officers suggested firms cut employment by 0.4% last year. Headcount rose 0.5% year-on-year in December, recovering some of the 1.8% drop in November. They still expect job losses over the next 12 months, predicting a further 0.4% decline — the worst reading since 2020.