By Andy Bruce
(Reuters) – The vast majority of British companies look set to cut employee pay in response to looming tax hikes and remain pessimistic about the outlook for the economy, two surveys showed on Monday.
Data provider Incomes Data Research said 69% of employers it surveyed were very or moderately likely to cut rewards to offset the payroll tax hike announced by Chancellor of the Exchequer Rachel Reeves in her first Budget last October.
More than half of those respondents said they were “extremely likely” to slow their pay increases.
The survey sheds light on a key uncertainty facing the Bank of England ahead of the February 6 interest rate announcement.
The BoE is trying to gauge whether employers will react to the tax increase by cutting jobs, wages or profits, or by raising prices.
Most investors and economists think the central bank is likely to cut interest rates by a quarter of a point next week, but the picture for the rest of the year is less clear.
A separate survey published on Monday by the Confederation of British Industry showed that companies are only slightly less pessimistic about the next three months than they were in December.
The CBI growth indicator – which measures expectations among businesses in manufacturing and services, including retail – barely rose in January to -22 from a more than two-year low of -24 in December.
“After a dark run-up to Christmas, the New Year has not brought any sense of renewal, with businesses still expecting a significant drop in activity,” said Alpesh Paleja, interim chief economist at the CBI.
“With plans to cut the workforce and raise prices further, this risks an increasingly uncomfortable trade-off for policymakers.”
Reeves said her tax increase is a one-time thing to put public finances on a stable footing while raising funds for services and investment. He is expected to give a speech this week on his plans to boost Britain’s sluggish economy.
One-third of employers in the IDR survey said they were likely to lay off workers, while 45% said they would absorb the impact of the tax increase by cutting profits or in other ways.
IDR said 37% of employers plan to award pay increases between 2.0% and 2.99% this year, while 43% anticipate pay increases between 3.0% and 3.99%. Only 14% expected 4% or more, offering some relief to the BoE, which is concerned about lingering inflationary pressures in the economy.
IDR surveyed 168 employers employing 1.2 million workers in November and December. The CBI’s report covered 990 companies that were surveyed from December 19 to January 14.
