Companies plan to raise prices over the next year at a lower rate than many economists anticipated, Bank of England research has shown, easing concerns that the UK economy is heading for a deeper cost of living crisis.

The Decision Makers' Panel (DMP), a Bank of England survey measuring how far firms intend to lift prices, broadly matched the expectations of City economists, which could help calm tension in bond markets seen over recent days. Bond yields edged up on Friday after falling on Thursday.

The DMP, run jointly by the Bank of England with academics at Nottingham University Business School, polls thousands of UK firms each month and is one of the main gauges the Monetary Policy Committee (MPC) watches when judging where inflation — and therefore interest rates — may be heading. That makes the survey a key input ahead of the Bank's upcoming rate decision.

A three-month average of firms' own price expectations came in below the consensus of 3.9 per cent, suggesting cost pressures may prove milder than some had predicted.

The survey showed that firms plan to raise their prices by 3.6 per cent over the next year — still well above the Bank of England's two per cent target, meaning policymakers are unlikely to read the figures as a signal that price pressures have fully faded.

One-year-ahead CPI inflation expectations edged up slightly to 3.1 per cent, though this matched economists' forecasts.

Analysts at Pantheon Macroeconomics described the latest data release as "fractionally dovish," saying it could soften worries that the UK economy is heading for another spike in inflation.

"With surprises small, the bulk of the Monetary Policy Committee will see the DMP as good enough to justify keeping interest rates on hold while they wait to see how the acceleration in inflation due in the second half of the year feeds through the economy," economist Rob Wood said.

Inflation and wage expectations edge up

Monthly inflation figures will be crucial, as they could influence whether Bank policymakers back interest rate hikes.

Earlier this year, two-year gilt yields jumped above 4.5 per cent, a level implying three interest rate hikes on the horizon. AJ Bell analysts noted that a hike could come in November, followed by two further increases in the middle of next year.

Short-term gilt yields have since fallen slightly to around 4.4 per cent, which would still point to interest rate rises ahead.

The Bank of England's MPC still has time to monitor price pressures in the UK economy and global markets. The Brent crude oil price remains above $90 per barrel as Iran and the US continue to clash over the Strait of Hormuz, leaving traders on edge that further financial tightening could follow.

RBC Capital Markets said wage growth expectations data in the DMP would be crucial for the Bank of England, because persistently strong pay growth can keep services inflation elevated even as other cost pressures cool. The latest figures showed expected wage growth over the next year edged up only from 3.3 per cent in July to 3.4 per cent in August.