Inflationary pressures are expected to continue throughout the year as companies plan to increase prices in response to the tax-raiding Budget of Rachel Reeves, according to a survey from the Bank of England.
The Bank's most recent decision maker panel, which polls finance chiefs nationwide, revealed that firms' inflation expectations rose in December, as reported by .
Anticipated price growth for the upcoming year increased to four per cent, up from 3.8 per cent the previous month, marking the highest level since April of the previous year. The survey also indicated that actual price growth in the year to December rose to four per cent, an increase from 3.7 per cent the month prior.
Concerns about inflation have been mounting, spurred by reports that companies will raise prices in reaction to government tax increases. Chancellor Rachel Reeves raised the rate of employers' national insurance in October's Budget, a key part of a broader £40bn tax hike.
However, the Bank of England's survey revealed that over half (54 per cent) of firms anticipate raising prices due to the Chancellor's tax raid, a figure unchanged from November. Economists fear this could reinforce inflationary dynamics, which have yet to be definitively curbed.
The latest data showed that inflation rose to 2.6 per cent in November. While the Bank of England's most recent forecasts suggest inflation will peak at 2.75 per cent in mid-2025, many analysts worry that price pressures could be worse than anticipated.
Financial markets have recently reduced bets on interest rate cuts due to concerns that price pressures might persist. Markets are currently predicting just two rate cuts this year.
The Bank of England's survey presented mixed news regarding wage pressures facing firms. Realised annual wage growth fell to 5.3 per cent in December, the lowest since the Bank began asking this question in May 2022.
However, expected wage growth for the upcoming year slightly increased to 3.9 per cent, marking the first rise since July. Bank of England officials have highlighted wage growth as a key indicator of domestic inflationary dynamics, and the survey will likely heighten concerns that price pressures will continue into the new year.
