Bank of England survey raises hope of lower inflation; Some good news on inflation for once; Recruitment difficulties are easing

Bank of England survey raises hope of lower inflation

The Bank of England survey of corporate pricing plans contains good news, but June's 50 basis-point rate hike shows that policymakers are losing patience and confidence in these forward-looking inflation indicators. Expect at least two more 25bp hikes, but better news on inflation should allow a pause later this year.

 

Some good news on inflation for once

If you’re looking for some good news on the UK inflation story, then on the face of it there’s plenty of it in the latest Decision Maker Panel from the Bank of England. This survey, which historically policymakers have paid close attention to, asks chief financial officers (CFOs) a variety of questions about their expectations. And for several months now, it has pointed to more muted price pressure from the corporate sector. Here are a few of the stand-out figures:

• Expected price growth over the next year is 4.9%, down from a peak of 6.6% a year ago (and 5.9% in April).
• Wage growth is seen at 5.3% over the next year, having peaked at 6.3% in December.
• The proportion of firms finding it “much harder” to recruit compared to normal is at 29%, comfortably the lowest it has been since the question was introduced in October 2021. It was typically between 50-60% through much of 2021/22.
• One-year ahead CPI expectations are at 5.7%, down from a peak of 9.5% seen last September, though three-year expectations nudged up slightly.

All of this echoes what we’ve seen in some of the other leading indicators of inflation, including producer price inflation which has come down dramatically over recent months. The doves at the Bank of England would argue that all of this suggests inflation should come down dramatically later this year, and the recent stickiness is simply a longer-than-expected lag time from lower input price inflation.

 

Recruitment difficulties are easing

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