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British businesses have cut employment by the largest amount in nearly four years and expect wage growth to slow – but do not think this will translate into much lower inflation, according to a Bank of England survey published on Thursday.
The BoE’s Decision Maker Panel survey of around 2,000 firms with at least 10 staff showed businesses reported that employment levels in the three months to August were 0.5% lower than a year earlier, the biggest drop since the third quarter of 2021.
This is in line with the annual fall in payrolled employees in July reported in tax office data released last month, although other official data – which has suffered from low response rates – suggest this fall has been offset by higher self-employment.
The BoE forecast last month that inflation will climb to 4% in September. Policymakers are divided about how fast it will return to its 2% target and whether further interest rate cuts are warranted after August’s quarter-point reduction to 4%.
Thursday’s survey offers ammunition for both camps.
Businesses surveyed by the BoE in the three months to August said they expected to raise their own prices by 3.7% over the coming year – although more volatile monthly data showed a drop to 3.5% in August alone from 3.9% in July.
Companies said they planned to raise wages by an average 3.6% over the coming year – less than the 4.6% they said they had over the past 12 months and the joint-lowest since the BoE started regularly asking this question in May 2022.
But Rob Wood, chief UK economist at Pantheon Macroeconomics, said the rate at which planned wage growth was falling had slowed and that businesses were responding to higher employment costs by cutting staff rather than wages.
“The DMP survey shows stubborn wage and price pressures despite falling employment, continuing to suggest that structural economic changes and supply weakness are keeping inflation high,” he said, predicting no more rate cuts this year.
(Reporting by David Milliken; editing by Mark Heinrich)
