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UK firms’ wage growth expectations fall sharply, BOE survey shows

by Mark Darwin
in Lifestyle
UK firms’ wage growth expectations fall sharply, BOE survey shows
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British businesses’ expectations for wage growth over the coming year fell sharply last month, according to a Bank of England (BOE) survey, which may ease policymakers’ worries that it will be hard to keep inflation on target.

Expectations for wage growth over the coming year in the BOE’s Decision Maker Panel survey dropped to 4.1 per cent in May from 4.6 per cent in April, while on a three-month average basis, the measure fell to 4.5 per cent from 4.8 per cent.

Both figures were the lowest since the current series started in May 2022.

Average earnings excluding bonuses rose by an annual 6 per cent in the first quarter of 2024 – much higher than the rate of around 3 per cent, which most BOE policymakers view as consistent with their 2 per cent consumer price inflation target.

Last month, the BOE forecast annual wage growth would only drop to around 5.25 per cent by the end of this year.

Several policymakers have said they want to see clear signs that both wage growth and service price inflation are falling before they begin to cut interest rates, which are at a 16-year high of 5.25 per cent.

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Financial markets do not fully price in a first rate cut until November – much later than many economists thought just a few weeks ago – partly reflecting persistent inflation in the United States as well as in Britain.

The BOE survey showed that businesses expected inflation in one year’s time to be 2.9 per cent, unchanged from April’s year-ahead expectation and above the current 2.3 per cent rate.

The central bank forecasts inflation will rise towards the end of the year as the impact of recent falls in regulated household energy prices fades.

The BOE survey was based on responses from 2,317 firms between May 10 and May 24. REUTERS

Tags: BOEExpectationsFallFirmsGrowthsharplyShowsSurveyWage
Mark Darwin

Mark Darwin

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