Less than half of companies plan to hike prices in boost for Bank of England and inflation
Less than half of companies plan to lift prices over the coming months in a sign that inflation may finally be starting to budge after staying high for around a year and a half, a new survey out last night showed.
Analysis from the British Chambers of Commerce (BCC) found that companies are considering scaling back price rises in response to costs receding.
The survey of more than 5,000 companies found a reduction in global gas prices is easing the pressure on businesses’ finances. Just under 50 per cent now intend to bump up prices over the next quarter, the smallest fraction since the middle of 2021.
However, bottom lines are still being crimped by workers demanding higher wages to protect their finances from rising prices.
Some 68 per cent of firms are now grappling with a higher pay bill, greater than the 63 per cent who have seen their utility costs rise. Wage costs are now the top source of rising costs.
It is another sign that UK inflation is starting to be driven by domestic factors instead of international dynamics.
Energy prices have skyrocketed over the last year, caused by a sudden burst in demand after Covid-19 lockdowns ended and then Russia’s invasion of Ukraine.
Workers in response to higher prices have been demanding pay rises to shield their budgets. According to the Office for National Statistics, pay is up more than seven per cent over the last year, the second highest increase on record.
As a result, companies have been raising prices to protect their margins. However, the BCC’s research signals that firms are beginning to think twice about continuing to ask consumers to cough up more cash.
Bank of England officials have been lifting interest rates since December 2021 to try to bring down price increases, nudging up borrowing costs 13 times in a row to a near 15-year high of five per cent.
Financial markets think rates could peak at more than six per cent and that Bank governor Andrew Bailey and co will repeat last month’s outsized 50 basis point increase in August.
“There is a fine balancing act to be struck here. Push too hard on interest rates and there is a real danger that the long-term outlook for economic growth and prosperity will be dented,” Shevaun Haviland, director general of the BCC, said.
There is growing concern that the Bank could tip the UK into recession if it tightens policy too much.
Some argue the central bank has already moved hard enough to pull inflation back down to the two per cent target in the coming months.