Key facts
- Firms surveyed by the Bank of England expect to raise prices by 3.6% in the next year.
- This figure is lower than the 3.9% consensus forecast from City economists.
- One-year ahead CPI inflation expectations rose slightly to 3.1%.
- Expected wage growth increased to 3.4% in August from 3.3% in July.
- Short-term gilt yields are around 4.4%, suggesting future interest rate hikes are still anticipated.
Firms in the UK anticipate raising prices at a slower pace over the next year than many economists had predicted, according to Bank of England research. The Decision Makers’ Panel survey showed that firms plan to increase prices by an average of 3.6%, which is below the 3.9% consensus forecast. This data could alleviate concerns about a deepening cost of living crisis and ease tensions in bond markets.
While one-year ahead CPI inflation expectations edged up slightly to 3.1%, matching economist predictions, the overall trend in price expectations is seen as "fractionally dovish." This suggests that the Monetary Policy Committee may opt to keep interest rates on hold as they assess the impact of current inflation levels on the economy.
Despite the softer price expectations, expected wage growth did tick up to 3.4% in August from 3.3% in July. Short-term gilt yields remain around 4.4%, still indicating that interest rate hikes are likely. Global factors, such as Brent crude oil prices staying above $90 per barrel due to geopolitical tensions, continue to influence market sentiment and the potential for further financial tightening.