The June United Kingdom (UK) Decision Maker Panel (DMP) survey, as highlighted by TD Securities strategists, indicates that one-year inflation expectations among UK firms have eased to 3.3% in June, down from 3.7% in May. However, three-year inflation expectations remained steady at 2.9%, which is slightly higher than the pre-conflict level of 2.7% [1]. Despite the moderation in near-term inflation expectations, businesses' price-setting intentions for the next year held firm at 4.0%, with the three-month smoothed measure ticking up to 4.1% [1].
Additionally, expected wage growth among firms edged up from 3.4% in May to 3.5% in June, suggesting persistent upward pressure on labor costs [1]. TD Securities analysts argue that these incremental changes are not significant enough to alter the majority of Monetary Policy Committee (MPC) members' preference to hold interest rates in July. The strategists also note that the slower pass-through from lower energy prices to corporate expectations could mean that easing inflationary pressures may take longer to be reflected in firms' outlooks [1].
Overall, the survey points to sticky pricing and wage expectations among UK businesses, even as headline inflation expectations moderate. This dynamic may influence the Bank of England's policy stance, with most MPC members likely to favor maintaining current rates in the near term [1].
CONCLUSION
The June DMP survey reveals that while UK firms expect lower near-term inflation, their price-setting and wage growth expectations remain elevated. This suggests that the Bank of England is likely to keep rates on hold in July, as underlying pressures in pricing and wages persist.