Economy 3 min read By Bethany Hadley
UK Firms See Price and Wage Growth Steady as Energy Costs Squeeze Margins
British companies reported stable price and wage increases in the latest survey, but rising energy costs are eroding profit margins. The findings suggest persistent inflation pressures as the Bank of England weighs its next move on interest rates.
British companies have reported little change in the pace of price and wage increases, according to a closely watched survey, but rising energy costs are eating into their margins. The findings point to stubborn inflation pressures that could complicate the Bank of England's decisions on interest rates in the months ahead.
The survey, which tracks output prices and wage settlements across the UK corporate sector, showed that firms continue to pass on higher costs to customers at a steady rate. Wage growth also remained broadly unchanged, suggesting that the tight labour market is still feeding through to pay packets. However, energy bills — particularly for electricity and gas — have risen sharply, squeezing profitability for businesses that cannot easily absorb the extra costs.
For the Bank of England, the data presents a difficult trade-off. Stable price and wage growth would normally ease concerns about inflation becoming entrenched. But if energy costs keep climbing, firms may be forced to raise prices further to protect their margins, potentially reigniting inflationary pressures. Policymakers have repeatedly said they are watching wage growth and services prices closely for signs that inflation will return sustainably to the 2% target.
The survey adds to a mixed picture of the UK economy. Recent official figures have shown inflation easing from its peak, but it remains above target. Economic growth has been sluggish, and business investment has been weak. Many companies are also grappling with higher borrowing costs after the Bank of England raised interest rates sharply over the past two years.
Energy costs have been a particular flashpoint. Although wholesale gas prices have fallen from the extreme levels seen after Russia's invasion of Ukraine, they remain volatile. For energy-intensive sectors such as manufacturing, hospitality and retail, even moderate increases can have an outsized impact on margins. Some firms have warned that they may need to cut jobs or delay investment if costs continue to rise.
The survey's findings are likely to be scrutinised by the Bank's Monetary Policy Committee, which meets next month. Markets currently expect rates to be held steady, but a further acceleration in price or wage growth could shift expectations. Conversely, if energy costs start to fall, pressure on margins could ease, giving firms more room to absorb wage increases without raising prices.
For now, the picture is one of steady but elevated inflation pressures, with energy costs acting as a drag on corporate profitability. How long that persists will depend on global energy markets, domestic wage bargaining, and the broader trajectory of the UK economy — all of which remain uncertain.
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