British Executives See High Inflation Lingering For Three Years

British Executives See High Inflation Lingering for Three Years

(Bloomberg) -- UK company executives anticipate inflation will remain well above the Bank of England's target for at least three years and are responding by raising prices.

The central bank's survey of 2,561 corporate decision makers showed expectations that inflation will be about 8.4% in a year and 4.2% in three years. That's well above the BOE's 2% target.

The headline reading was more than a full percentage point above the last figure in July, reflecting a worsening outlook for inflation after natural gas and power prices spiraled higher most of last month.

What Bloomberg Economics Says ...

“The Bank of England's Decision Maker Panel survey for August showed medium-term inflation expectations drifting higher for a fourth straight month. This is the data series most closely followed by the BOE's Monetary Policy Committee right now, as it looks for signs that inflation is becoming embedded. Equally worrying was the rise in expected wage growth one-year ahead. Taken together with July's hotter-than-expected CPI and jobs data, the reading makes a 50 basis-point rate hike, or a larger move, highly likely at the central bank's September meeting.”

--Ana Luis Andrade, Bloomberg Economics. Click for the REACT.

Companies are raising their own prices to protect their profit margins. Questioned last month, they expected to increase prices by 6.4% in the next year, only slightly less than the 6.7% recorded in July. The three-month average accelerated to 6.5%, the highest since the data series began in 2017.

Consumer price inflation breached double digits for the first time in 40 years in July, prompting forecasters to anticipate both prices and interest rates will peak higher and later than expected at the start of August. Goldman Sachs delivered the most alarming outlook with a forecast for 22% inflation.

The BOE survey showed some weakening in the pressures in the labor market, where low unemployment has left companies scrambling to hire staff. The chief financial officers surveyed said they expect wage growth to slow to 5.5% in the next year from 6.4% over the last 12 months.