“Cautious” becomes “careful”. A small nuance, but a key takeaway from BusinessLDN’s most recent economic briefing with the Bank of England.
It’s designed to signal that there is more uncertainty around the next steps and timing of future changes to interest rates. The Bank is now less sure of the future path and it’s not the case that it’s looking to pick up the pace of rate cuts.
Whilst the current rate remains restrictive, the inflation outlook is bumpy. There are plenty of risks out there in the global economy and trade policy uncertainty is running at record highs since the US election.
Inflation has picked up — spurred on by a rise in the energy price cap — with a further increase in the energy cap likely in April alongside increases in other regulated prices such as train fares and phone contracts. Fortunately, this fresh spike in inflation is expected to be temporary rather than sticky.
The Bank’s Agents’ pay survey shows that pay growth is expected to moderate to 3.7% this year, although the increase to the National Living Wage is still seen as the biggest factor affecting pay settlements.
Firms are taking a range of measures to mitigate the forthcoming rise in National Insurance Contributions, including passing on higher prices, lowering wage growth and lowering employment – as well as taking a hit to profit margins.
All that chimes with our Slido pulse check on the day, which showed a mixed outlook for the year, that most companies are carefully managing headcount, and that the majority are expecting pay awards this year to track inflation in the region of 2 – 3%.
Thanks to Jacqui Chamber from London Heritage Quarter Business Improvement District for ending the session with some positive news: football is back strongly at 90% of pre-pandemic levels, and dwell time is also up. Hotel occupancy is at its highest since 2018, theaters are close to sell-out, and office vacancy rates are only running at 7%.
Finally, huge thanks to James Worsnip and Marina Dritsa at AlixPartners for hosting us. Thanks to Lai Wah Co at the Bank of England for great insights. And thanks to Muniya Barua for steering us through. Look forward to seeing BusinessLDN members at our next briefing on 15th of May.
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