Inflation easing – but wage growth still a threat, Bank of England panel warns
Inflationary pressures appear to be easing but elevated wage growth may pose a threat to its decline in the coming year, a Bank of England survey suggested.
According to the Bank’s decision maker panel, which surveys business leaders from a range of different sectors, price increases averaged an annual rate of 5.9 per cent in the three months to December.
This was down from an average of 6.6 per cent in the previous rolling quarter.
On a monthly basis, output prices rose 4.9 per cent in December. This was 1.1 percentage points lower than November, making it the slowest rate of monthly increases since November 2021.
Looking ahead, businesses expect the pace of price increases to slow over the next year with own-price inflation averaging 4.4 per cent in the three months to December.
The figures suggest that the surprisingly fast progress on bringing inflation down to the two per cent target still has further to run.
As energy prices have fallen, so the rate of inflation has eased. In November, it fell below four per cent for the first time in two years. This has sparked bets that the Bank will start lowering interest rates in the first half of this year.
But in the most recent Monetary Policy Report, members of the Monetary Policy Committee raised concerns that strong wage growth, driven by a tight labour market, would keep inflation above target for an extended period of time.
In response to the surge in inflation, wage growth spiked as workers sought to catch up with rising prices.
Policymakers have warned that this could cause a wage-price spiral, helping to embed inflation in the wider economy.
Figures from the ONS suggest the Bank’s interest rate hikes have done little to dent stubborn wage growth just yet. The Bank’s survey shows that firms have actually increased their estimate for what they would have to pay workers.
Expected year-ahead wage growth increased marginally to 5.2 per cent on a three-month moving average basis, up from 5.1 per cent last month.