UK (Parliament Politic Magazine) – According to a recent survey conducted by the Bank of England, UK businesses are anticipating a rapid increase in prices in response to workers’ demands for higher wages. This finding further reinforces concerns about the potential for high inflation. These findings highlight the growing pressure on UK businesses to raise prices in order to meet the demands of their workforce.
The potential consequences of this trend include a higher cost of living for consumers and an increased risk of inflation. It is important for policymakers and economists to closely monitor these developments and consider appropriate measures to mitigate the potential negative impact on the economy.
BoE Decision Maker Panel Reveals New Data Regarding Price Hikes
Bank of England forecasts UK businesses to sustain price increases due to the wage demands. Results from a recent survey conducted by the central bank indicate that UK businesses are projected to persist with their price hikes as a response to wage demands. Furthermore, the survey reveals that companies anticipate the continuation of inflationary pressures throughout the forthcoming year.”
The survey, known as the BoE Decision Maker Panel, regularly collects data from chief financial officers at UK companies. The results from the three-month period ending in June indicate that businesses expect a 5.3 percent increase in output prices over the next year. Although this figure is slightly lower than the 5.4 percent recorded in the previous survey conducted between March and May, it still reflects a significant upward trend.
Furthermore, the survey reveals that chief financial officers anticipate a 5.3 percent growth in workers’ wages in the coming year. This projection represents a slight increase from the 5.2 percent growth reported in the previous poll. In terms of actual wage growth, the survey shows that chief financial officers reported a rise of 7.1 percent in June, up from 6.7 percent in May.
UK Businesses Report Accelerating Wage Growth
“The findings of the BoE survey suggest that the optimism surrounding wage growth reaching normal levels soon may be misplaced,” stated George Moran, an economist at Nomura. Moran further emphasized that although there was only a slight increase in wage growth, the fact that it did not decline is significant.
Ruth Gregory, an economist at Capital Economics, commented, “As businesses continue to anticipate higher wages, these increases are becoming a permanent fixture in their future budgets.” The survey of chief financial officers serves as a crucial source of information on prices and wages when the central bank makes decisions regarding interest rates.
In an effort to combat high inflation and bring it down to the BoE’s target of 2 percent, the central bank has raised rates 13 times since late 2021. Following the release of official data indicating that inflation remained stagnant at 8.7 percent in May, the BoE unexpectedly increased rates by half a percentage point to 5 percent last month. These rates are currently at their highest level in 15 years.
The survey brought forth encouraging news regarding recruitment, as the percentage of businesses reporting increased difficulty in hiring continued to decline from a record high of approximately 90% in the summer of the previous year.
However, even with this decline, a significant 58% of companies were still facing challenges in finding suitable workers in June. Simultaneously, the survey’s release coincided with the publication of separate data that highlighted the adverse effects of rising interest rates on the construction sector, particularly in housebuilding.
Businesses Report A Contraction In UK Housing Sector
The UK construction sector experienced a setback in June, as indicated by the S&P Global/CIPS UK Construction Purchasing Managers’ Index. This widely recognized measure of sector activity recorded a significant decline to 48.9, marking the lowest level observed since January and reflecting a notable drop from the previous month’s reading of 51.6.
Tim Moore, the esteemed Economics Director at S&P Global Market Intelligence, provided valuable insights into the factors contributing to this downturn. He highlighted the adverse effects of the housing market’s weakened conditions, which were primarily attributed to the burden of higher borrowing costs. These challenging circumstances acted as a major constraint on the output of the UK construction industry, further exacerbating the sector’s struggles.