Businesses surveyed by the Bank of England are expecting price inflation to slow, according to a business conditions summary published today.
Input cost inflation, such as rises in the price of raw materials, had eased slightly and businesses regarded the inflationary impact of sterling’s drop in value to have peaked.
Of the 308 businesses with a combined turnover of £70.3bn surveyed by the Bank, the majority also said inflation in output prices would lessen over the coming year in all sectors except consumer services.
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“Consumer goods price inflation had eased but remained elevated, though contacts expected it to abate over the coming year, especially for imported goods such as clothing and cars, as the effect of sterling’s depreciation wanes,” the Bank of England’s agents wrote.
The firms which said they had experienced higher import costs explained they had currently been able to pass through 52 per cent of what they expected to be stuck with in total.
Yet the Bank did add that there was “some evidence of financial distress in retail and leisure, reflecting weak consumer spending growth”, following a string of warnings from the high street.
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As inflation pressures eased, it seemed some sectors were also getting ready to boost investment. Intentions of business heads to invest further in their firm “remained modest”, the Bank of England summarised, but saw a pick-up especially among manufacturers.
Meanwhile the “reduced availability of EU migrant labour” was blamed for rising recruitment difficulties which had broadened out of the construction, engineering, software development, professional services and logistics sectors into hospitality, warehousing, agriculture and food.
In the face of a looming Brexit, chief financial officers across the board were still optimistic about sales – even though actual sales last year were lower than they had predicted.
The CFOs surveyed said that annual nominal sales growth would pick up from 4.6 per cent in the final quarter of 2017 to 5.3 per cent by the end of this year.
Sterling’s drop in value also had a role to play here, as the Bank of England predictably found that exporting companies experienced higher sales growth than domestically focused firms.
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