Firms plan to raise prices at a slower pace than many economists predicted, according to new Bank of England research, easing some concerns over a deepening cost of living crisis.
The Bank’s Decision Makers’ Panel, a survey tracking how far firms intend to raise prices, broadly matched expectations held by City economists ahead of an upcoming interest rate decision.
A three-month average of firms’ own price expectations came in below the consensus forecast of 3.9 per cent, suggesting cost pressures may be milder than some analysts had anticipated.
Firms surveyed said they plan to raise prices by 3.6 per cent over the next year, a figure that still sits well above the Bank of England’s two per cent inflation target.
One-year ahead CPI inflation expectations edged up slightly to 3.1 per cent, though the reading matched predictions made by economists in advance of the release.
Analysts at Pantheon Macroeconomics described the latest data as “fractionally dovish,” saying it could help soften worries that the UK economy is heading for another spike in inflation.
Rob Wood, economist at Pantheon Macroeconomics, said: “With surprises small, the bulk of Monetary Policy Committee will see the DMP as good enough to justify keeping interest rates on hold while they wait to see how the acceleration in inflation due in the second half of the year feeds through the economy.”
Bond yields edged up on Friday after having fallen on Thursday, with markets remaining sensitive to any signals from the Bank of England about the future path of interest rates.
Earlier in the year, two-year gilt yields jumped above 4.5 per cent, a level that implied as many as three interest rate hikes could be on the horizon, according to AJ Bell analysts.
AJ Bell noted that a rate hike in November remained possible, with two further increases potentially following in the middle of next year, keeping pressure on the Monetary Policy Committee.
Short-term gilt yields have since fallen slightly to around 4.4 per cent, a level that still points to further monetary tightening ahead as policymakers weigh incoming economic data.
The Bank of England’s MPC retains time to monitor price pressures both domestically and across global markets before committing to its next policy move.
The Brent crude oil price remains above $90 per barrel as Iran and the US continue to clash over the Strait of Hormuz, adding uncertainty for traders already bracing for further financial tightening.
RBC Capital Markets highlighted that wage growth expectations within the Decision Makers’ Panel would be a key data point for Bank of England policymakers assessing the inflation outlook.
Expected wage growth over the next year edged up only marginally, rising from 3.3 per cent in July to 3.4 per cent in August, according to the latest figures from the survey.