UK firms see easing inflation, modest job growth ahead

The Bank of England (BoE) released the results of its February Decision Maker Panel (DMP) survey on Thursday, based on responses from 2,042 Chief Financial Officers of UK firms collected between February 6 and February 20.

Firms reported that their realized annual own-price growth was 3.7% in the three months to February, unchanged compared with the previous three-month period. This measure reflects the prices charged by firms across the entire economy, not just those selling directly to consumers.

Looking ahead, year-ahead expectations for firms’ own-price inflation edged slightly lower to 3.4% in the three months to February, down 0.1 percentage points from the previous survey. According to the BoE, this suggests businesses anticipate a modest easing in output price inflation over the coming year.

Expectations for consumer price inflation also declined marginally. Firms now expect Consumer Price Index (CPI) inflation to reach 3.1% over the next twelve months, compared with 3.2% previously. Meanwhile, three-year-ahead CPI inflation expectations slipped to 2.8%, indicating that businesses still anticipate inflation gradually moving closer to the central bank’s target over the medium term.

On the labor market side, firms reported annual wage growth of 4.3% in the three months to February, slightly lower than the 4.4% recorded previously. Year-ahead wage growth expectations remained unchanged at 3.6%, implying that companies expect wage growth to slow by around 0.7 percentage points over the next twelve months.

Finally, the survey points to a modest improvement in employment dynamics. Firms reported a decline in realized annual employment growth of 0.2% in the three months to February, an improvement from the 0.5% dip in the previous period. Expectations for employment growth over the next year also increased slightly, rising by 0.3 percentage points to 0.1%.

Market reaction

In the foreign exchange market, the GBP/USD pair trades around 1.3350 at the time of writing on Thursday, down 0.18% on the day.