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(Bloomberg) — UK companies became more optimistic about inflation in June, even as they plan to raise their own prices by 4% in the coming year — double the Bank of England’s CPI target.
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The BOE’s Decision Maker Panel showed firms see consumer prices rising 3.3% in the next 12 months, down from an expectation of 3.7% in May.
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The survey was carried out between June 5 and June 19, a period spanning the announcement that the US and Iran had reached a deal to reopen the Strait of Hormuz. The news triggered a plunge in oil prices and raised hopes that inflation will peak at a lower level than previously thought.
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However, the DMP, a poll of chief financial officers, showed firms are still trying to pass through price increases to repair battered profit margins.
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The pace at which they expect to raise their own prices held at 4% in June, the survey found. In a sign of ongoing cost pressure, firms said they expect wages to rise 3.5% over the coming year. That’s up from 3.4% in May and above the level the BOE sees as compatible with its 2% inflation target.
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The survey is closely watched by BOE rate setters as they assess whether the surge in prices triggered by the Iran war could lead to second-round effects on wages and prices.
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Having been united at the start of the conflict, the Monetary Policy Committee is looking increasingly split between a minority who want to hike rates and others including Governor Andrew Bailey who appear happy to hold at 3.75%.
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What Bloomberg Economics Says…
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“Inflation expectations eased further in June according to the Bank of England’s closely watched Decision Maker Panel survey. The decline likely reflects the drop in energy prices over recent weeks and supports our view that the current bout of above-target inflation is unlikely to morph into a more persistent shock. The data add to the case for the BOE to keep rates on hold this year. Absent a resurgence in energy prices, we think a cut is the more likely direction of the central bank’s next move.”
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—Matt Bunny and Dan Hanson, economists. Click to read the REACT on the Terminal
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