Bank of England should take ‘measured approach’ to interest rate cuts after balanced survey
The Bank of England’s survey covers prices charged across the whole economy, not just in consumer-facing firms.
Firms expect to lift prices at the slowest pace in three years, a new Bank of England survey shows, although projected wage growth in the coming 12 months remained unchanged.
Chief financial officers surveyed by the Bank in August expect to raise prices by 3.4 per cent over the year ahead, the lowest level since August 2021. Last month the figure stood at 3.7 per cent.
The survey also showed that realised price growth in the year to August fell to 3.9 per cent from 4.4 per cent previously, pointing to a further easing in inflationary pressures.
The Bank of England’s survey covers prices charged across the whole economy, not just in consumer-facing firms.
Recruitment difficulties also appear to be dissipating with the share of firms reporting that it is much harder than normal to recruit new employees falling.
However, there was less movement on wage growth, which has been a major concern for policymakers at the Bank of England.
Realised wage growth over the past year stood at 5.7 per cent, unchanged on the month before. Expected wage growth remained at 4.1 per cent, having been broadly unchanged throughout the summer.
Rob Wood, chief UK economist at Pantheon Macroeconomics, said the survey added to signs that the official data might have “exagerated the slowing in wage pressures”.
“The survey shows the MPC will need to take a measured approach to interest rate cuts, and gives the MPC no reason to rush to lower rates again in September,” he argued.
The Bank of England cut interest rates for the first time since the pandemic last month, but most economists do not expect a further rate cut in September.
Inflation is expected to rise modestly over the remainder of the year while growth has outperformed forecasts, pointing to an economy that is still running at or near capacity.
The latest figures on the labour market are due to be published next week before August’s inflation report will be published the following week.
