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New insights into price-setting behaviour in the United Kingdom

  • Greenslade, Jennifer

    ()

    (Bank of England)

  • Parker, Miles

    (Bank of England)

It is important to understand how companies set prices, since price-setting behaviour plays a key role in the monetary policy transmission mechanism. Many surveys have been conducted in a range of countries to shed light on this issue by asking companies directly about how they set prices. This paper reviews the results of a new survey of the price-setting behaviour by the Bank of England of around 700 UK firms. In terms of how companies set prices, the survey evidence supported the use of the mark-up over costs form of pricing. Firms reviewed prices more frequently than actually changing them, with the median firm changing price only once per year, but the frequency with which companies changed their prices varied considerably across sectors. Over the past decade a significant number of firms had increased the frequency of price changes. Different factors influenced price rises and price falls. Higher costs – in particular, labour costs and raw materials – were the most important driver behind price rises, whereas lower demand and competitors’ prices were the main factor resulting in price falls. Nearly half of firms changed their prices within three months of an increase in costs or a fall in demand.

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Paper provided by Bank of England in its series Bank of England working papers with number 395.

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Length: 43 pages
Date of creation: 19 Jul 2010
Date of revision:
Handle: RePEc:boe:boeewp:0395
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  1. Silvia Fabiani & Martine Druant & Ignacio Hernando & Claudia Kwapil & Bettina Landau & Claire Loupias & Fernando Martins & Thomas Mathä & Roberto Sabbatini & Harald Stahl & Ad Stokman, 2006. "What Firms' Surveys Tell Us about Price-Setting Behavior in the Euro Area," International Journal of Central Banking, International Journal of Central Banking, vol. 2(3), September.
  2. Simon Hall & Mark Walsh & Anthony Yates, 1997. "How do UK companies set prices?," Bank of England working papers 67, Bank of England.
  3. Dhyne, Emmanuel & Álvarez, Luis J. & Le Bihan, Hervé & Veronese, Giovanni & Dias, Daniel & Hoffmann, Johannes & Jonker, Nicole & Lünnemann, Patrick & Rumler, Fabio & Vilmunen, Jouko, 2005. "Price setting in the euro area: some stylized facts from individual consumer price data," Working Paper Series 0524, European Central Bank.
  4. Fabiani, S. & Druant, M. & Hernando, I. & Kwapil, C. & Landau, B. & Loupias, C. & Martins, F. & Mathä, T. & Sabbatini, R. & Stahl, H. & Stockman, A., 2005. "The Pricing Behaviour of Firms in the Euro Area: New Survey Evidence," Working papers 135, Banque de France.
  5. Macallan, Clare & Millard, Stephen & Parker, Miles, 2008. "The cyclicality of mark-ups and profit margins for the United Kingdom: some new evidence," Bank of England working papers 351, Bank of England.
  6. Apel, Mikael & Friberg, Richard & Hallsten, Kerstin, 2001. "Micro Foundations of Macroeconomic Price Adjustment: Survey Evidence from Swedish Firms," Working Paper Series 128, Sveriges Riksbank (Central Bank of Sweden).
  7. Hall, Simon & Walsh, Mark & Yates, Anthony, 2000. "Are UK Companies' Prices Sticky?," Oxford Economic Papers, Oxford University Press, vol. 52(3), pages 425-46, July.
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