British companies reported stronger expectations for selling prices over the coming year, according to a Bank of England survey published on Friday, adding to a sequence of corporate indicators pointing toward elevated inflationary pressure.
The BoE's Decision Maker Panel found that in April firms expected selling prices to rise by 4.4% in the next 12 months. That reading was higher than March's 3.7% and marked the strongest level since January 2024. At the same time, the panel's gauge of expected sales growth for the year ahead fell to its lowest reading since July 2020, the period when the COVID-19 pandemic was at its height.
Two long-running business surveys published on Thursday also recorded record-sized increases in some of their pricing measures, reinforcing the signal that companies are factoring in higher prices. Those results add to a debate over the strength of firms' pricing power: BoE Governor Andrew Bailey has previously argued that such pricing power is limited in part because a weakening labour market and sluggish demand constrain firms' ability to pass on costs fully to customers.
Separately, a survey based on the central bank's network of regional agents reported that businesses appeared "minded to pass on at least some of the cost rises that have or are expected to come through, because their profit margins are already squeezed." That agents' report also highlighted firms' concerns about weak demand, suggesting that companies are likely to increase prices cautiously rather than aggressively.
Expectations for consumer price inflation among companies for the next 12 months climbed to 4.0% in April, up from 3.5% in March. The April reading was the highest since December 2023. By contrast, companies' longer-term inflation expectations remained broadly stable, a development likely to be welcomed by members of the Monetary Policy Committee.
Wage growth expectations among firms showed little change in the survey. Looking ahead to monetary policy, the BoE was expected to keep interest rates unchanged on Thursday. Market participants, however, are watching closely: investors anticipate between two and three quarter-point increases in borrowing costs this year and will monitor any shifts in the central bank's stance or the Monetary Policy Committee's outlook.
Context and implications
The combination of higher short-term price expectations and weaker sales prospects presents a nuanced picture: firms face squeezed margins that encourage some pass-through of costs, but subdued demand may limit the pace and scale of price rises. This tension underpins the BoE's policy dilemma as it balances inflation readings against economic slack.