BoE survey finds many UK firms plan to raise prices and cut jobs

London — More than half of British employers plan to raise their prices and cut jobs in response to the new government’s first budget, according to a survey published by the Bank of England (BoE) on Thursday.

Almost 60% of firms expected to lower their profit margins to cope with an increase in social security contributions that was announced by finance minister Rachel Reeves on October 30, the Monthly Decision Maker Panel survey showed.

But 54% expected to raise prices and the same proportion said they would lower employment, while 38% expected to pay lower wages than they otherwise would have done.

The BoE is watching closely for how firms respond to the increase in social security costs as it tries to assess how much inflation pressure is likely to remain in the British economy.

The survey’s measure of expectations for wage growth — something the BoE watches closely as it considers when to cut interest rates again — cooled a bit further, dropping by 0.1 percentage point to 4% on a three-month moving-average basis in November.

It was the weakest reading since at least mid-2022, when comparable records started.

For November alone, the expected increase in pay slowed to 3.8% from 4.1% in October.

“Ordinarily this would be a clear dovish signal, increasing the BoE’s confidence that moderating underlying pressures will bring inflation down,” JPMorgan economist Allan Monks said.

“However, this shift does appear related to the national insurance tax rise. At the same time, there was a clear step up in expected inflation.”

The survey showed companies’ expectations for Britain’s consumer price inflation in the year ahead rose to 2.7% in the three months to November from 2.6% in the three months to October. In November alone, those expectations jumped to 2.8% from 2.5% in October.

BoE governor Andrew Bailey reiterated on Wednesday that he expected the central bank would cut borrowing costs only gradually as there was “still a distance to travel” to get inflation fully under control.

Reuters