COMPANIES expect to cut the size of pay increases this year, in spite of surging UK inflation, a survey by the Bank of England has revealed.

The annual survey of firms, conducted by the Bank’s regional agents, signals pay rises will average 2.2 per cent this year. This would be down from 2.7 per cent in 2016. And the Bank notes the number of pay awards of between three per cent and four per cent is expected to fall “significantly”.

Settlements are expected to moderate in all sectors. The sharpest deceleration of pay rises is anticipated in the consumer services sector. The Bank noted some companies in this sector had made pay awards in 2016 that were beyond those strictly necessary to meet the National Living Wage at that time.

Annual UK consumer prices index inflation surged from 1.2 per cent in November to 1.6 per cent in December, and is expected to surge towards three per cent. It was at 0.3 per cent in May last year, ahead of the Brexit vote.

The pound has tumbled in the wake of the Brexit vote, pushing up import costs and annual CPI inflation.

Bank of England deputy governor Sir Jon Cunliffe yesterday highlighted the Monetary Policy Committee’s expectations that business investment would “remain very weak” before picking up. He noted the Bank’s projections for business investment over the three-year forecast period were much weaker than those back in May.

Sir Jon said: “By the end of the forecast, the level of business investment is around 20 per cent lower than in the Monetary Policy Committee’s May 2016 forecast. Our latest estimate of year-on-year business investment growth in the fourth quarter of 2016 is already around six percentage points weaker than our projection in May.”