UK dealmakers expect inflation to come down to 2% target
The majority (95%) of UK dealmakers expect inflation to hit the 2% target set by the Bank of England, according to CIL’s Investment 360 Index. An optimistic minority (10%) predict that this will happen in the next year and a realistic majority (55%) expecting this to happen within the next two years. A more pessimistic 40% see the target taking three to five years and 5% think that the 2% target will never be reached.
The Index is based on research with 143 UK market stakeholders, including private equity investors, management teams, corporate finance providers and business advisors, and has been run by CIL, the independent international management consultancy, since 2017.
Satisfaction with the Bank of England is predominantly mixed (55%) with only 20% of respondents saying it is doing a good job, and 29% saying it is doing a poor job. There is, however, support for the current monetary policy. Almost two thirds (61%) think that monetary policy should stay the same, 32% believe that it should loosen and just 8% say it should tighten – this compares to 54% last year.
Of the 29% of respondents who think the BoE is not doing a good job, some provided further commentary citing the slow pace of interest rate hikes and fears of overcorrection as reasons for their dissatisfaction.
Satisfaction with the government remains low with respondents’ persistent pessimism improving only slightly from an all-time low last year. This year, 8% of respondents say it is doing a good job, 45% have a mixed view and 48% say it is doing a bad job, compared to the 70% majority who said it was doing a bad job 2022 (largely because of the Truss/Kwarteng government). When asked about fiscal policy and the use of government spending and tax to influence economic conditions, 49% said that it should stay the same, 38% said it should loosen and just 13% said it should tighten.
However, when it comes to the recent increases in corporation tax, it appears to have had limited impact on investment activity, with 73% saying there had been no change, 22% said their investment activity had decreased moderately and just 2% said it had decreased significantly.
Commenting on the findings of the Investment 360 Index, Alex Marshall, senior partner at CIL, said: “Although the Bank of England were slow to act, the business community feel the medicine is working. The Index shows that there is strong support for the current monetary policy being implemented by the Bank of England but a much wider range of views when it comes to the time it will take to bring inflation down to the 2% target. If inflation takes three to five years to come down to the BoE’s 2% target, businesses and consumers – not to mention the government – will need to adjust to higher borrowing costs, which will have material implications for leverage, asset (including house) prices, and consumer spending.”
