BOE SURVEY SAYS LIMITED PASS-THROUGH OF COST PRESSURES TO PRICES

The Bank of England's latest survey indicates that businesses expect only limited pass-through of cost pressures into consumer prices, suggesting firms are absorbing rising input costs rather than fully raising selling prices. For markets, this matters because weaker pass-through reduces the risk of a self-reinforcing wage-price spiral, which lowers the inflation persistence premium priced into UK gilts and sterling and can weigh on expectations for how far the Bank Rate must stay elevated. Short-dated gilts and sterling rate-sensitive contracts are most exposed, since shifts in expected policy-path repricing feed directly into front-end yields and the sterling swap curve, while margin-squeezed sectors such as retail and consumer goods face the reverse risk of compressed earnings. Traders should watch the next UK CPI release and the Bank's forthcoming Monetary Policy Report for confirmation of whether core services inflation is easing alongside the survey's signal on pricing intentions.

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