UK businesses expect their selling prices to rise at their lowest pace since the start of the Ukraine war, according to new data from the Bank of England, raising hopes that inflationary pressures may be easing.
A monthly survey of chief financial officers from small, medium and large companies showed that selling price growth expectations for the year ahead dropped to 5.7 per cent in November, from 6.2 per cent in the previous month.
The figures, published on Thursday, mark a significant fall from a September peak of 6.7 per cent, reaching their lowest level since February, just before Russia’s invasion of Ukraine sent global gas and commodity prices soaring.
The data raise hopes that UK consumer price inflation — which reached a 40-year high of 11.1 per cent in October — will ease in the coming months. Consumer inflation has already begun to fall in the US and the eurozone.
“We expect the October figure to be the peak of inflation,” said Gabriella Dickens, senior UK economist at the consultancy Pantheon Macroeconomics.
While inflation is unlikely to reach the 2 per cent target next year, prices will remain “firmly on the downward trajectory”, according to the consultancy.
Falling inflation expectations might give the BoE’s Monetary Policy Committee “a little bit of space to breathe, particularly when the economic outlook has deteriorated”, added Dickens.
The UK economy shrunk by 0.2 per cent in the third quarter of 2022, with the Office for Budget Responsibility, the fiscal watchdog, expecting recession to persist until the end of next year.
According to the OECD, a club of mostly rich nations, the UK is set to be the worst performing economy in the G20 next year, bar Russia.
Dickens expects the MPC to take on “a more dovish outlook”, as she predicts that it will halt bank rate rises at a peak of 4 per cent midway through 2023.
Wage growth expectations were also down to 5.8 per cent in November, from a peak of 5.9 per cent in September, the BoE’s survey showed.
The bank views the data on price and wage expectations as a “useful barometer of the persistence of inflation”, said Paul Dales, chief UK economist at Capital Economics.
The easing in business price and wage expectations may “push some MPC members towards wanting to raise interest rates by 50 bps [basis points] rather than 75 bps” at the next policy meeting on December 15, added Dales.
The BoE’s survey also showed that businesses expected higher interest rates to lower their capital expenditure by 8.4 per cent next year.
Also released on Thursday, the S&P/Cips global purchasing managers’ index showed that the UK manufacturing sector contracted for the fourth month in a row in November.
Business sentiment last month fell to its lowest level since April 2020 as companies reported “rising recession fears, weak consumer spending and subdued client confidence”, said Rob Dobson, director at S&P Global Market Intelligence.
Source: Economy - ft.com
