UK Firms Plan Lower Price Rises Than Expected Ahead of Interest Rate Decision

The Bank of England is closely monitoring inflation expectations data, and recent research suggests that firms intend to raise prices over the next year at a lower rate than many economists had expected.

The Decision Makers' Panel, a Bank survey of how far firms plan to raise prices, broadly matched expectations made by City economists. The three-month average of firms' own price expectations was below the consensus of 3.9 per cent, suggesting cost pressures may be milder than some had predicted.

The survey showed that firms plan to raise their prices by 3.6 per cent over the next year, which is still much higher than the two per cent target rate by the Bank of England. One-year ahead CPI inflation expectations edged up slightly to 3.1 per cent, though matched a prediction by economists.

Pantheon Macroeconomics analysts described the latest data release as 'fractionally dovish' and said it could soften worries that the UK economy is heading for another spike in inflation. According to Rob Wood, the bulk of Monetary Policy Committee will see the DMP as good enough to justify keeping interest rates on hold while they wait to see how the acceleration in inflation due in the second half of the year feeds through the economy.