UK businesses anticipate a slower pace of wage increases over the next 12 months, providing some reassurance to Bank of England policymakers that inflation may be under control. A survey conducted by the BOE in May, involving 2,317 businesses, found that the average expected wage rise had eased to 4.5% from 4.8% in April. Over the past three months, wages were reported to be 6% higher than the same period a year earlier.
The strength of recent wage growth has been a key concern for policymakers as they consider lowering borrowing costs later this year. The annual rate of consumer-price inflation in the UK is expected to be close to the BOE’s 2% target this quarter, largely due to a decline in home energy prices. However, there are worries that once energy prices stabilise, rapidly rising wages could cause a fresh increase in inflation.
The businesses surveyed by the BOE expected their prices to rise by 3.9% over the next 12 months, slightly below the 4% rise anticipated in April. However, they expected consumer-price inflation to remain at 2.9%, well above the BOE’s 2% target.