(Bloomberg) — UK companies’ inflation expectations cooled for a second month in February after more signs that the rapid pace of price increases has peaked, according to a Bank of England survey of chief financial officers.
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Firms polled in February said they expected inflation to be at 5.9% in a year’s time, down from 6.4% in January, the Decision Maker Panel report showed.
It was the lowest expectations have been since the BOE started asking executives in May 2022 but companies reported that strains in the jobs market worsened again.
BOE policy makers have highlighted inflation expectations as a key factor influencing their thinking after a string of interest-rate rises. Markets are betting those increases are now approaching an end.
The latest fall in the DMP survey followed a large drop in January. Three-year inflation expectations declined to 3.4% from 3.7%.
Firms’ confidence in their ability to make price rises stick is seen as an indicator of how persistent elevated inflation will prove to be. On that metric, the latest findings are encouraging: CFOs expect their own output prices to rise by 5.4% over the coming year, the lowest reading for 12 months and down 0.4 percentage point from January.
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However, there were still signs of a tight jobs market that could cause headaches at the BOE by fueling more enduring inflationary pressures.
Expected year-ahead wage growth remained at 5.7% in February and recruitment difficulties worsened after recent improvements. Some 45% of companies said they found recruitment much harder than usual, a sharp rise from 35% in January.
The rate of CPI inflation has fallen from a peak of 11.1% in October with policy makers expecting lower energy prices to help drive a further slowdown over 2023. But wage growth has accelerated, threatening to fuel price growth and force the BOE to keep monetary policy in restrictive territory for longer.
