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UK Businesses Eye 3.5% Pay Hikes Amid Inflation Fears
30 Oct
Summary
- Businesses expect pay increases around 3.5% next year.
- This level of pay growth could concern policymakers.
- Firms predict food price inflation of 3%-4% by year-end.
Businesses in the UK are forecasting average pay increases of around 3.5% for the next year, according to recent Bank of England surveys. This figure is similar to current pay settlements but could influence the Bank of England's decision on interest rates. Policymakers are closely watching wage growth, with rates above 3% typically making it challenging to meet the 2% inflation target.
Two separate surveys indicate this trend. The Agents' Summary of Business Conditions suggests businesses expect pay settlements around 3.6%, slightly higher than previous forecasts. In contrast, the Decision Maker Panel reported firms anticipate 3.4% wage growth over the next year, unchanged from the previous quarter. However, single-month data from the DMP showed a dip in expected wage growth to 3.3% in October.
Beyond wages, businesses also anticipate food price inflation. While firms expect food prices to rise by 3% to 4% by the end of the year, food producers foresee larger increases of 3%-6% when contracts are renegotiated in 2027. Supermarkets, however, believe a 4% rise is more probable.
