By Andy Bruce
(Reuters) – A clear majority of British businesses appear ready to cut staff pay in response to upcoming tax rises and remain pessimistic about the outlook for the economy, two surveys showed on Monday.
Data provider Incomes Data Research said 69% of employers surveyed were extremely or moderately likely to cut pay bonuses to offset an increase in payroll taxes announced by Finance Minister Rachel Reeves in her first Budget last October.
More than half of those surveyed said they were “extremely likely” to slow down their pay increases.
The survey highlights major uncertainty facing the Bank of England ahead of its interest rate announcement on February 6.
The BoE is trying to determine whether employers will respond to higher taxes by cutting jobs, wages or profits, or by raising prices.
Most investors and economists think the central bank will likely cut interest rates by a quarter point next week, but the picture for the rest of the year is less clear.
A separate survey released Monday by the Confederation of British Industry showed businesses were only slightly less pessimistic about the next three months than they were in December.
The CBI growth indicator, which measures business expectations in the manufacturing and services sectors, including retail trade, barely rose in January to -22, from a low of more of two years of -24 in December.
“After a gloomy period leading up to Christmas, the new year has brought no sense of renewal, with businesses still expecting a significant decline in activity,” said Alpesh Paleja, acting chief economist at the CBI.
“Alongside plans to cut staff numbers and raise prices, this is likely to be an increasingly difficult trade-off for policymakers.”
Reeves said his tax increases were one-offs and aimed at stabilizing public finances while raising money for services and investments. She is expected to give a speech this week on her plans to speed up Britain’s sluggish economy.
A third of employers in the IDR survey said they were likely to make layoffs, while 45% said they would absorb the impact of tax increases by reducing profits or other means. means.
IDR said 37% of employers planned to give salary increases between 2.0% and 2.99% this year, while 43% planned salary increases between 3.0% and 3.99%. . Only 14% expected a hike of 4% or more, which would offer some relief to the BoE which is concerned about lingering inflationary pressures in the economy.
IDR surveyed 168 employers covering 1.2 million workers in November and December. The CBI report covered 990 companies surveyed between December 19 and January 14.
