U.K. Businesses Face ‘Historic’ Price Jumps Just as Growth Slows
U.K. Businesses Face ‘Historic’ Price Jumps Just as Growth Slows
(Bloomberg) -- U.K. firms are facing an “historic surge” in inflationary pressures and more manufacturers than ever are poised to increase their prices as a result, according to one of the country’s leading business lobbies.
The findings from the British Chambers of Commerce survey, released as firms grapple with supply chain disruption and staff shortages, will make troublesome reading for the Bank of England, which is on the lookout for signs that rapid price gains are becoming entrenched.
Concern about inflation among both service and manufacturing firms are at the highest level on record, while more than half of companies said their cash flow had either deteriorated or stagnated, the BCC said.
As a result, economic growth saw only a “disappointingly modest uptick” in the third quarter, even as most of its pandemic restrictions were lifted, the lobby group said.
The survey chimes with other reports showing the U.K. economy facing a mix of stagflationary forces as growth slows and inflation accelerates well past the BOE’s 2% target.
Cost Pressures
“Businesses are being battered by a deluge of up-front cost pressures, including huge increases in the prices of key raw materials and shipping,” said Shevaun Haviland, director general of the BCC. “At the same time, they are losing out on opportunities for growth due to the labor shortages, despite many already raising wages and offering training.”
The report could undermine Prime Minister Boris Johnson’s argument that the supply chain crisis is a “turning point” for the economy, and evidence the country will benefit from higher pay after Brexit.
The balance of manufacturing firms expecting to hike prices rose to a 60% in the third quarter. More than 60% of services sector companies said inflation was an increased cause for concern. All those readings are the highest ever recorded by the BCC survey.
Most manufacturers said rising raw material costs were to blame for the increases, with only 22% citing higher wages.
“Acute supply shortages and rising raw material costs drove an historic surge in inflationary pressures in the third quarter,” said Suren Thiru, the BCC’s head of economics.
“However, with little evidence in our figures that higher inflation is stoking a broad-based escalation in pay settlements,” the central bank “should have enough leeway to keep interest rates steady over the medium term,” Thiru said.
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