Firms' inflation expectations for the coming 12 months have risen, according to the Bank of England's monthly Decision Makers' Panel survey. This increase could put pressure on policymakers to consider raising interest rates.
One-year ahead CPI inflation expectations increased from about 3.1 per cent in August to 3.3 per cent last month. Longer-term inflation expectations and wage growth predictions also edged higher, reflecting growing price pressures across the UK economy.
The majority of businesses surveyed indicated that higher energy prices are significantly impacting their price-setting. Many firms also reported very high levels of uncertainty, suggesting a less stable economic outlook for the UK.
Several policymakers, including Governor Andrew Bailey, Clare Lombardelli, and Sarah Breeden, have cautioned that interest rates may need to rise from 3.75 per cent if global energy prices remain elevated. The Brent crude oil price is currently around $100 per barrel, a more than 40 per cent increase since late February.
However, Bank official Alan Taylor, considered a more dovish member of the Monetary Policy Committee, noted that interest rates do not need to react mechanically to energy markets. He pointed to a weak labour market and falling food inflation as factors that might temper the rise in overall inflation.