Firms turn up the pricing dial
Chief financial officers in the Bank of England's Decision Maker Panel, surveyed from Sept. 4 to Sept. 18, said they expect to increase their own selling prices by a 3.9% rise over the next 12 months. That is the strongest reading since June and 0.3 percentage point higher than in the previous month. They also put headline inflation one year out at 3.3%, up from 3.1%.
How will companies handle the energy shock? The BOE said almost six in ten plan to lift prices, and seven in ten expected a deterioration in their profit margins. Even so, majorities reported they did not expect sales, hiring, or wages to be directly affected.
Pay, jobs and the long view
Expected wage growth edged up to 3.5% from 3.4%. Looking further ahead, the panel expects inflation three years from now to remain significantly above the BOE's 2% target. Officials are wary that pricier oil and gas could nudge firms to charge more and workers to seek bigger pay packets.
The wage channel looks a bit calmer for now, and there are signs the labor downturn may be bottoming, with respondents predicting employment growth for a fourth straight month. Separate household surveys show inflation expectations rising too, with people preparing for a steep January jump in gas and electricity bills.
Even when headlines change, disciplined saving and buying can pay off over time, so grab the free Always Be Buying E-Book
Energy shock hits the forecourt
The squeeze is not abstract for drivers. For the first time, the average price for diesel hit £2 ($2.6) per liter - a rise of over 40% from the beginning of the Iran war. The RAC called it the threshold "no one wanted to cross," and said prices show no signs of slowing. Although DMP inflation measures are still under the peaks that followed the US and Israeli attacks on Iran, the latest upturn poses yet another challenge for the BOE as it considers how to manage the energy shock.
Rates path and market setup
Several BOE policymakers have indicated they could support a rate rise next month, and markets now anticipate at least three increases over the coming year. Bloomberg Economics' Matt Bunny and Dan Hanson wrote: "Inflation is now on track to peak around 4% in early 2027 - a level where households become more attentive to the outlook for prices. What's more, demand is resilient and there are tentative signs the labor market is stabilizing. Against this backdrop, we expect the central bank to lift rates by 25 basis points in November, with a follow-up move in February." Pantheon Macroeconomics' Robert Wood added that officials "will be relieved at limited signs of second-round effects, but price plans and wages are still hot enough for the Monetary Policy Committee to hike in November," and that "most of the DMP readings are inconsistent with inflation returning sustainably to target, and that is before indirect and second-round energy effects have really had time to seep into the data."
No matter the news cycle, small regular investments add up when you stay consistent, so download the free Always Be Buying E-Book
