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LONDON, Dec 1 (Reuters) – British businesses reported cooling price pressures but a Bank of England survey on Thursday warned of lower employment and investment, which should reassure policymakers that their interest rate hike is taking effect.
Businesses on average reported that they raised prices by 7.2% in the 12 months to November, the smallest amount since April, and are expected to increase prices by 5.7% over the next year, the lowest since February.
The BoE looks closely at surveys of businesses’ pricing expectations for a guide to how sustained inflation is likely and how much it needs to raise interest rates.
Inflation expectations among the British public have also fallen from their peak in August, according to a monthly survey by Citi and YouGov released on Wednesday.
British factory output prices rose at the weakest pace since March 2021, Thursday’s Manufacturing Purchasing Managers’ Index (PMI) data showed.
Consumer price inflation hit a 41-year high of 11.1% in October, more than five times the BoE’s 2% target, and the BoE survey showed businesses expected it to rise to 7.2% in one year and 3.9% in three years.
In stark terms, expectations for CPI and producer prices remain higher than the BoE would like. While the CPI was last on target, the producer price measure was typically in the 2-3% range.
Financial markets expect the BoE to raise interest rates from 3% to 3.5% on December 15, after a three-quarter-point hike in November.
Both the BoE and the government’s Office for Budget Responsibility estimate that Britain’s economy has slipped into recession, largely due to rising energy costs but also a rise in interest rates.
Businesses also said in the BoE survey that higher borrowing costs would reduce their capital spending by 8.4% and employment by 2.3%, although some hiring difficulties have eased.
The BoE survey, called the Decision Maker Panel, was conducted from November 4 to November 18 and was based on responses from 2,601 companies.
Reporting by David Milliken, Editing by Kylie McLellan and Andy Bruce
Our Standards: The Thomson Reuters Trust Principles.
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