UK businesses will continue to raise prices in response to wage demands

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UK businesses expect to raise their prices at a rapid pace next year in response to workers' demands for higher wages, according to a Bank of England survey that reinforces concerns about high inflation. The BoE's panel of decision makers, a regular survey of UK companies' finance directors, showed that in the three months to June, companies expect producer price inflation to be 5.3 percent next year. This was only marginally lower than the 5.4 per cent recorded in the survey in the three months to May. The new survey released Thursday also found that CFOs expect workers' wages to grow 5.3 percent next year. That compares with the 5.2 percent growth recorded in the previous survey. Real pay growth reported by CFOs rose to 7.1 percent in June, from 6.7 percent in May. The BoE survey findings suggest that “optimism that wage growth is slowing towards normal levels may soon be misplaced,” said George Moran, an economist at Nomura. He added that wage growth showed “only a marginal increase, but the fact that it did not fall is significant.

Economist at Capital Economics, said: “As companies' wage expectations remain elevated, higher wages are being built into companies' future budgets.” The CFO survey is an important source of price Job Function Email Database and wage information when the central bank makes interest rate decisions. The central bank has raised rates 13 times since the end of 2021 as it tries to tackle high inflation and bring it down to the BoE's target of 2 percent. After official data showed inflation remained stagnant at 8.7 percent in May, the BoE last month raised rates by half a percentage point more than expected to 5 percent. Rates are at their highest point in 15 years. The survey provided better news on hiring, as the share of companies saying hiring was more difficult than usual continued to decline from an all-time high of around 90 percent in the summer of last year.



Despite the drop, 58 percent of companies were still struggling to find workers in June. The survey was released as separate data showing the negative impact of rising interest rates on the construction sector, including housing construction. Purchasing Managers' Index line chart, below 50 = most companies report contraction showing UK property activity contracting sharply The S&P Global/Cips UK construction purchasing managers' index, a measure of activity in the sector, fell to 48.9 in June, from 51.6 the previous month, and the lowest level since January. Tim Moore, chief economics officer at S&P Global Market Intelligence, which compiles the data, said "weaker housing market conditions on the back of higher borrowing costs acted as a major constraint on construction output in the United Kingdom in June. Read More: UK businesses will continue to raise prices in response to wage demands, says Bank of England.