Two of Britain's biggest businesses, BT (BT.L) and Sainsbury's (SBRY.L), said tax changes in last week's budget would fuel inflation, a view which could affect the Bank of England's longer term interest rate plans.
Telecoms company BT, which employs about 100,000 people, and supermarket Sainsbury's, which has around 150,000, said they may have to raise prices in response to increases in employers' National Insurance (NI) social security contributions from April.
While the BoE is likely to cut interest rates for only the second time since 2020 when it announces its decision at 1200 GMT on Thursday, the big question for investors is what signals it sends over possible future rate moves in the wake of the government's budget on Oct. 30.
Investors reeled in their bets on repeated interest-rate cuts next year after Finance Minister Rachel Reeves unveiled tax rises she said were needed to fix public services.
She said employers' National Insurance (NI) social security contributions would go up by 1.2 percentage points to 15%, while the threshold for firms to start paying would be lowered to 5,000 pounds from 9,100 pounds.
BT said the change would increase its costs by close to 100 million pounds ($129 million) next year, about 0.5% of the company's total cost base. Sainsbury's said it was facing headwinds of 140 million pounds from the budget, including from a rise in the minimum wage.
"We'll do everything we can to mitigate this, but given the margins of the industry - this is a 3% margin industry - there just isn't the capacity to absorb this level of unexpected cost inflation that is coming at us as fast as it is," Sainsbury's CEO Simon Roberts said.
BT's boss Allison Kirkby said while she would also look for savings to offset the rise in costs, price rises were possible.
"We will absolutely have to look at our pricing relative to input inflation that we are incurring," she said.
Last week the Office for Budget Responsibility, whose forecasts underpin the government's tax and spending plans, said the NI increase would add to inflation as firms pass on the cost to consumers. Reeves said company profits would have to absorb some of the rises.
Marks & Spencer (MKS.L) and JD Wetherspoon (JDW.L), two other big high street employers, said on Wednesday that they would try to minimise the cost rises they pass onto consumers.
($1 = 0.7747 pounds)
