Ryan FowlerThe Bank of England’s latest Decision Maker Panel (DMP) data for December 2024 indicates that businesses expect price and wage increases to persist in 2025, although both are projected to ease slightly from current levels.
Firms reported annual output price inflation at 3.8% for the three months to December, down from 3.9% in November. Despite the minor decline, businesses expect price inflation to remain steady at 3.8% over the next year, suggesting that cost pressures will continue across the economy.
Wage growth stood at 5.4% on an annual basis during the same period, a slight reduction of 0.1 percentage points from November. Firms predict a more notable slowdown in wage inflation, expecting it to moderate to 4.0% over the next 12 months. However, this remains well above historical averages, reflecting ongoing labour market tightness.
Meanwhile, businesses also reported a slight increase in inflation expectations, with year-ahead CPI inflation forecast to rise to 2.8% from 2.7% in November. The longer-term three-year CPI inflation expectation rose similarly by 0.1 percentage points to 2.7%.
The DMP data highlights concerns about the impact of the employer National Insurance contribution increase announced in the Autumn Budget. Over November and December, 61% of firms indicated they plan to absorb the cost by reducing profit margins, while 54% said they will raise prices. Additionally, 53% expect to lower employment levels, and 39% foresee reducing wage increases.
A Bank of England spokesperson noted that while wage pressures appear to be easing, businesses remain cautious due to the cost burdens from fiscal policy changes and inflationary pressures.
