UK Companies Plan Price Increases, Job Cuts Following Tax Hike, BoE Survey Reveals

LONDON:  A survey by the Bank of England of over 2,000 firms revealed that British businesses anticipate increasing prices and cutting staff due to a rise in employers' social security contributions set to begin in April. The BoE's Decision Maker Panel indicated that 61 per cent of firms anticipated decreased profits, 54 per cent intended to increase prices, 53 per cent predicted lower staffing levels, and 39 per cent planned smaller salary increases as a result of the National Insurance hike outlined in the budget from Oct. 30. Other surveys have indicated a decline in business confidence, along with hiring and investment plans, following finance minister Rachel Reeves' announcement of a 25 billion-pound ($31 billion) rise in payroll taxes. 

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The economic slowdown has heightened concerns in financial markets regarding Britain's public debt levels, resulting in a significant increase in borrowing costs this week. Distinct statistics released on Thursday by a recruitment agencies association indicated that the demand for new employees had decreased by the largest margin since August 2020. The BoE is evaluating when to reduce interest rates again and monitoring if the increased employment costs translate into inflation via price hikes or through job losses, decreased investment and wage growth that would decelerate the economy. 

UK firms to raise prices.

Rob Wood, Pantheon Macroeconomics' chief UK economist, stated that the BoE's survey indicated the tax increases were contributing more to price hikes – and less to an economic slowdown – than the findings from the REC or S&P purchasing managers' index surveys suggested. "The fundamental DMP (survey) inquiries persist in indicating persistent inflation and wage increases, along with a milder decline in the job market than qualitative surveys reveal, suggesting that the Monetary Policy Committee will only reduce interest rates 'slowly'," he stated. 

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In November, British consumer price inflation climbed to an eight-month peak of 2.6 per cent, and the BoE anticipates it will increase further in 2025, not reaching its 2 per cent target until 2027—restricting its inclination to lower interest rates from the present 4.75 per cent. The BoE survey conducted from December 6-20 indicated that businesses intended to increase prices by 3.8 per cent in the upcoming year, which is 0.1 percentage points higher than anticipated in the three months leading up to November. Anticipated wage growth for the upcoming year stayed steady at 4.0 per cent on a three-month moving-average basis in December.