More than half of the firms surveyed by the Bank of England expect to raise prices in response to the Budget, with reductions in staff and pay also on the cards.
The Bank’s decision maker panel showed that 54 per cent of firms expect to raise prices in response to the national insurance hike. The same proportion expect to lower employment.
38 per cent of firms expect to lower employee wages, while 59 per cent said it would hit profit margins. Just three per cent said it would have no impact.
In the Budget, Chancellor Rachel Reeves increased the rate of employers’ National Insurance to 15 per cent, while also cutting the threshold at which firms must start paying the levy.
In an interview broadcast yesterday, Andrew Bailey, the Bank’s Governor, said the impact of the tax hike was the “biggest issue” for rate-setters in the near future.
“How companies balance the mixture of prices, wages, the level of employment, what is taken on margin, is an important judgement for us,” he said.
The Bank’s November forecasts suggested that the Budget will end up pushing up inflation by around half a percentage point.
More to follow