The latest survey from the Bank of England (BoE) reveals that British businesses are expecting a slight slowdown in wage growth over the next 12 months, which could help alleviate concerns about inflation. Chief UK economist Rob Wood predicts that easing inflation and recruitment challenges will contribute to a more significant decline in wages in the second half of the year.
According to the Decision Maker Panel survey, wage growth expectations dropped to 4.1% in the three months to July, down from 4.2% in the previous quarter. However, on a monthly basis, the measure increased slightly to 4.1% from 4.0%. Wood believes that despite the BoE's efforts to tighten monetary policy, wage growth and inflation may remain above target levels for a longer period than expected.
The BoE recently cut interest rates to 5%, marking the first reduction since the onset of the COVID-19 pandemic in March 2020. Governor Andrew Bailey emphasized that this move does not signify a series of rapid rate cuts. Additionally, businesses surveyed by the BoE anticipate smaller increases in their selling prices in the coming year compared to previous expectations.
Analysis:
The BoE survey results indicate a potential slowdown in wage growth for UK businesses, which could have implications for inflation and monetary policy decisions. As businesses anticipate lower selling price increases, consumers may see less pressure on their wallets in the near future. This shift in wage dynamics could impact overall economic growth and the Bank of England's policy direction, potentially leading to changes in interest rates and inflation targets.