More than half of British businesses expect to put up prices and cut jobs to cope with the costs imposed by Rachel Reeves’s Budget and National Insurance raid, according to a Bank of England survey. The Telegraph has more.
A majority of companies also expect to take a hit on profit margins, according to a major Bank of England survey of thousands of bosses.
The latest survey from the Bank’s Decision Maker Panel shows 54% of businesses expect to raise prices in response to an increase in employer National Insurance contributions (NICs). An equal proportion of businesses will lower employment.
Michael Saunders, a former member of the Bank’s interest rate-setting Monetary Policy Committee (MPC), said the figures showed the National Insurance increase was depressing the economy.
He said: “However the NICs increase is spread, the effect of it is to reduce real activity – it is either that margins get squeezed or pay gets squeezed or prices go up, in which case real wages fall. All of them have the effect of reducing real activity.”
Andrew Bailey, the Bank’s Governor, this week said the impact of the NIC increase is critical for future decisions on interest rates.
“I think the biggest issue now in the immediate future is the response to the National Insurance change – how companies balance the mixture of prices, wages, the level of employment, what is taken on margin, is an important judgement for us,” he told a conference.
The Bank’s Decision Maker Panel survey showed the typical business expects to cut its workforce by 0.1% over the next 12 months, the first time employment expectations have fallen into negative territory since October 2020 during the pandemic.
Bosses expect to put up prices by 3.8% – the highest expected increase since May, reversing some of the recent drop in inflation.
It means the Chancellor risks leaving Britain with higher inflation and fewer jobs as a result of the £25 billion increase in the NICs paid by employers on their workers’ pay packets.
Worth reading in full.
Stop Press: Brian Monteith argues in the Telegraph that “Starmer must sack Reeves immediately – or face oblivion”. “Surely the Prime Minister is fed up with being held responsible for the Chancellor’s mistakes.”
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