Businesses reported that wages rose by 3.9%, a slowdown from the 4% reported in September
By Paul Hannon
U.K. businesses polled in October expected to raise their prices at a slightly faster pace than in the previous month, but wage increases were seen slowing, according to a Bank of England survey released Friday.
Some 1,945 chief financial officers were questioned between Oct. 2 and 16, with energy prices having remained high since the start of the war between the U.S. and Iran in late February.
The survey found that businesses expected the prices they charge to rise by 3.8% over the coming 12 months, an increase from the 3.7% expected in September. Businesses reported that the prices they charge increased by 3.8% in the year to October.
"Businesses therefore expect output price inflation to be unchanged over the next year, based on three-month averages," the BOE said.
The high rate of expected price rises will concern BOE policymakers, who meet next week to set policy and are expected to raise their key interest rate to 4% from 3.75%.
However, there are few signs that higher inflation is leading to a pickup in wage growth that could trigger a second round of price increases.
In the year to October, businesses reported that wages rose by 3.9%, a slowdown from the 4% reported in September. They expect wages to rise by 3.4% over the coming 12 months, a significant cooling.
"This implies that firms expect their wage growth to decline by 0.5 percentage points over the next 12 months," the BOE said.
Most U.K. pay deals are negotiated in the early months of the calendar year, and policymakers worry that a jump in energy bills over the colder winter months will prompt an increase in demands as 2027 gets underway.
According to a separate report by the BOE's regional agents, there is little sign for now of such a pickup, with businesses facing weak demand and conscious that they may be unable to pass on higher costs to their customers.
"There is no evidence of a general late-year inflation premium in settlements as affordability, subdued demand and the looser labour market are limiting pass-through into larger awards," the BOE's agents reported.
Indeed, the survey of chief financial officers found that 71% expected their profit margins to fall as a result of the jump in energy prices.