Businesses’ inflation expectations were broadly unchanged in December. Over the next year, businesses expected their own output prices to increase by an average 5.7%, unchanged from the previous month, although the three-month average fell from 6.2% to 5.9%.
DMP members expected CPI inflation to be 7.4% one-year ahead in December, up from 7.2% in the November survey. Three-year ahead CPI inflation expectations increased by 0.1 percentage point to 4.0%.
Some easing in expectations for unit cost growth was reported in December. Businesses expected unit costs to grow by 8.1% over the coming year, down from 8.6% in November. Realised unit cost growth was estimated to have fallen from 10.8% to 10.1%.
Expectations for wage growth over the next year rose by 0.5 percentage points in December to 6.3%. Expected wage growth has gradually risen since the question was added back in May, by a total of 1.5 percentage points. Realised annual wage growth also increased in December to 6.6%, an increase of 0.5 percentage points on the month.
Recruitment difficulties were reported to be easing. In December, 71% of firms reported they were finding it harder to recruit new employees compared with normal. That was down from 78% in November. Realised employment growth remained strong in December, although expectations for year-ahead employment growth were weaker, with the three-month average declining by 0.1 percentage points to 1.4% in December.
The level of overall business uncertainty continued to decline in December. 57% of respondents reported that uncertainty for their business was ‘high’ or ‘very high’ at the moment, 3 percentage points lower than in November. However, uncertainty around the outlook for price growth remained historically high.
Businesses expected higher interest rates to lead to lower investment and employment over the next year. On average, businesses estimated that higher interest rates will lower their investment by around 8% and employment by around 2%, relative to what would have otherwise happened.
The DMP receives funding from the Economic and Social Research Council.