UK Business Price Hikes Amid Social Security Spike

British businesses are planning to raise prices and cut staff due to increased social security contributions, impacting profits and workforce. A Bank of England survey shows businesses grappling with reduced hiring and investment, amid economic slowdown worries. Inflation concerns are delaying interest rate cuts.

An upcoming rise in employers' social security contributions has prompted many British businesses to plan for price increases and staff reductions, according to a survey by the Bank of England involving more than 2,000 firms.

The Decision Maker Panel uncovered that 61% of companies anticipate a dip in profits, 54% plan price hikes, and 53% foresee decreased employment due to the National Insurance hike announced on October 30. Economic uncertainty intensifies as hiring intentions and business sentiment decline following finance minister Rachel Reeves's decision to elevate payroll taxes by £25 billion.

The economic slowdown, contributing to rising concerns over Britain's public debt, has sharply increased borrowing costs this week. Meanwhile, demand for new hires has fallen significantly, according to recruitment agency data, marking the most notable drop since August 2020.

As the BoE evaluates the timing of future interest rate cuts, it closely monitors whether elevated employment costs will manifest in inflation, job losses, or curtailed wage growth, potentially slowing the economy. Rob Wood, Pantheon Macroeconomics' chief UK economist, indicated the recent survey suggests tax hikes might drive prices more than overall economic deceleration. This, along with inflationary pressures, complicates immediate rate reductions.

(With inputs from agencies.)