Bank of England surveys show firms see pay rising around 3.5% in 2027

LONDON, Oct 30 (Reuters) - Bank of England surveys released on Friday showed businesses expect to raise pay by around 3.5% next year, similar to current rates but a level that may concern some policymakers as they consider whether to raise interest rates next week.

Economists widely expect the BoE to raise interest rates for the first time in three years next Thursday, as policymakers grow increasingly concerned that the length of the US-Iran conflict may put lasting upward pressure on inflation.

The BoE is looking for any sign that higher inflation – which rose to 3.5% last month – is leading to successful pressure from workers for bigger pay rises next year, potentially starting a spiral of rising wages and prices.

The BoE's Agents' Summary of Business Conditions reported that businesses surveyed this month expected average pay settlements for 2027 to be around 3.6% — similar to this year's level, but slightly higher than previously forecast.

However a separate BoE survey, the Decision Maker Panel,showed firms surveyed in the three months to October expected wage growth of 3.4% over the next year, unchanged from the previous reading taken in the three months to September.

Single-month DMP data, which tends to be more volatile, showed expected wage growth over the next year dipped from 3.5% to 3.3% in October, its joint-lowest since the series began on a regular basis in May 2022.

BoE policymakers tend to view wage growth above around 3% as making it harder to return inflation to its 2% target.

The agents' survey also showed businesses expected food price inflation of 3% to 4% at the end of the year, less than previously expected. But food producers expected prices to rise faster in 2027 when contracts are renegotiated, with increases of 3%-6%, though supermarkets thought 4% rises more likely.

(Reporting by David Milliken; editing by William James)