Yahoo Finance UK firms predict 5% rise in prices in Bank of England survey
Businesses in the UK have the highest expectation of increased inflation over the next 12 months in more than five years, it has been revealed.
According to the Bank of England’s (BoE) monthly decision maker panel, British firms expect inflation to be 5% in a year’s time, up from 4.3% in January’s survey.
This matched the reading posted in December, which was the highest since the series started in January 2017.
The decision maker panel is a survey of chief financial officers from small, medium and large UK business, used by the BoE to monitor developments in the economy and to track businesses’ views. Threadneedle Street surveyed businesses between 4 and 18 February, and received 2,699 responses.
The three-month average showed that expected inflation rose to 4.8%, the highest on record, according to the report.
The updated reading is likely to spark concerns that soaring inflation, which has been considered temporary by central banks, may fall slower than forecast.
Read more: What higher inflation means for savers and investors
In February, businesses also estimated that their sales in the first quarter of this year would be 7% lower than they otherwise would have been because of COVID-19, with investment 6% lower and employment 4% down.
In the latest survey, businesses’ near-term expectations for the impact of coronavirus on sales, employment and investment were broadly unchanged relative to expectations reported in the January survey.
Overall uncertainty fell back during the month, with the percentage of businesses that viewed the total level of uncertainty facing their business as high or very high at 49%, down from 54% in the previous month.
Pandemic-related uncertainty also fell in February, with 14% of firms reporting it as their top source of uncertainty, down from 23% the previous month.
The share of firms that reported Brexit in their top three sources of uncertainty was 29% in February, down from 34% in January.
Read more: European markets slip as London Stock Exchange blocks trading in Russian stocks
Meanwhile, the percentage of workers on business premises was reported to have risen to 72% in February, up from 64% in January, as government guidance for workers across the UK to work remotely where possible ended prior to the start of the survey window.
The share of workers who were unable to work — due to factors including sickness, self-isolation, and childcare — also fell in February to 4%, down from 6% in January.
It comes as consumer price inflation in the UK came in at 5.5% in December, before Russia’s invasion of Ukraine pushed energy prices even higher. This was ahead of the 5.4% figure that economists expected — adding to the current cost of living squeeze.
The inflation rate is currently more than double the Bank of England’s (BoE) 2% target. It is expected to reach 7.25% by springtime, when energy bills jump in April, and the chancellor’s tax rises come into place, before starting to come down.
The surging cost of living is raising expectations that Threadneedle Street will further hike interest rates at its next meeting in March.
In December, the BoE became the first major central bank to lift borrowing costs from record lows of 0.1% to 0.25%.
In February it doubled the rate from 0.25% to 0.5%, the second increase since the start of the pandemic, and the first back-to-back hike since 2004.
