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UK businesses expect their sales prices to rise at their slowest pace since the start of the Ukraine war, according to new data from the Bank of England, raising hopes that inflationary pressures may ease.
A monthly survey of chief financial officers of small, medium and large companies showed sales price growth expectations for next year fell to 5.7 percent in November, from 6.2 percent in the previous month.
The figures, released on Thursday, marked a sharp decline from a September peak of 6.7 percent, hitting their lowest level since February, after Russia’s invasion of Ukraine boosted global gas and commodity prices.
The data raised hopes that UK consumer price inflation – which hit a 40-year high of 11.1 percent in October – will ease in the coming months. The US And consumer inflation in the eurozone has already begun to decline.
“We expect the October figure to be a peak in inflation,” said Gabriela Dickens, senior UK economist at consultancy Pantheon Macroeconomics.
While inflation is unlikely to reach the 2 percent target next year, prices will remain “firmly on a downward path,” according to the consultancy.
Declining inflation expectations could give the BoE’s monetary policy committee “some breathing room, especially when the economic outlook has deteriorated”, Dickens added.
The UK economy shrank by 0.2 percent in the third quarter of 2022, with the fiscal watchdog, the Office for Budget Responsibility, expecting the slowdown to continue until the end of next year.
The UK is set to become the worst-performing economy in the G20 next year, barring Russia, according to the OECD, a club of mostly rich nations.
Dickens expects the MPC to take a “more hawkish view”, as she predicts it will cap bank rate rises above 4 per cent by 2023.
Expectations for wage growth also fell to 5.8 percent in November, from a peak of 5.9 percent in September, the BoE survey showed.
Paul Dales, chief UK economist at Capital Economics, said the bank sees data on prices and wage expectations as a “useful barometer of the persistence of inflation”.
Easing business price and wage expectations “could push some MPC members towards wanting to raise interest rates by 50 bps. [basis points] Instead of 75 bps at the next policy meeting on December 15”, Dales added.
The BoE’s survey also showed that businesses expected higher interest rates to cut their capital spending by 8.4 percent next year.
Also released on Thursday, the S&P/Cips Global Purchasing Managers’ Index showed that the UK manufacturing sector contracted for a fourth consecutive month in November.
Business sentiment fell to its lowest level since April 2020 last month as companies reported “increasing recession fears, weak consumer spending and reduced consumer confidence,” said Rob Dobson, director of S&P Global Market Intelligence.
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