Rising inflation expectations pressure Bank of England

British businesses have increasingly high expectations for inflation and wage costs over the coming year, according to a Bank of England survey which is likely to boost policymakers' concerns that it will be hard to get inflation back to target.

Last month the Bank of England raised interest rates by half a percentage point - its biggest increase since 1995 - and said it would "act forcefully" if it saw risks that inflation pressures were becoming persistent.

Consumer price inflation hit a 40-year high of 10.1% in July and the BoE forecast it will peak above 13% in October.

Financial markets expect another half-point rate rise from the BoE this month - which would take Bank Rate to 2.25% - and see a 29% chance of a 75-basis-point rise which would be the biggest rise since 1989.

The BoE pays particularly close attention to its monthly Decision Maker Panel survey of chief financial officers at British businesses with a range of sizes.

Thursday's release showed businesses expect consumer price inflation in a year's time to be 8.4%, up from a forecast of 7.3% in July's survey. Expectations for inflation in three years were also well above the BoE's 2% target at 4.2%.

Businesses plan to raise their own prices by an average of 6.4% over the next 12 months - down slightly from 6.7% in July, which was the highest in more than five years - while they intend to raise employees' wages by 5.5%, up from 5.2%.

Wages had risen by an average of 6.4% over the past 12 months, the survey showed.

The results from the BoE survey match the trend in a broader survey of households released on Wednesday by US bank Citi and polling company YouGov, which showed inflation expectations for five to 10 years' time hit a record high of 4.8%. 

However, there was some evidence of easing price pressure in parts of the economy in S&P Global's monthly manufacturing Purchasing Managers' Index.

Manufacturers' overall input costs - which include wages and raw materials - rose at the slowest pace since November 2020, despite surging energy bills, while prices charged rose by the least since March 2021.