UK factories are hiking prices en masse in a bid to withstand an inflation onslaught, reveal fresh figures released today.
A record number of British factories are raising prices as the sector scrambles to offset swelling costs to protect margins, research by BDO and Make UK found.
The “eye watering impact of escalating cost pressures” are now stinging consumers, warned James Broughman, senior economist at Make UK.
The figures reinforce bets made by City wonks on this week’s official inflation reading scaling to heights not seen since the aftermath of the financial crisis.
Deutsche Bank expects the rate of price rises to hit 4.9 per cent, which would be the highest clip since October 2011, leading the lender’s analysts to declare “we’re now firmly in uncomfortable inflation territory”.
Meanwhile, experts at Capital Economics think inflation could hit five per cent. Pantheon Macroeconomics have it settling at 4.8 per cent.
A combination of a global energy crunch propelling energy prices, soaring food costs and sky rocketing second-hand car values is expected to lead the November inflation print, out on Wednesday, up sharply.
A rebound in oil prices triggered by economies around the world emerging from Covid-19 restrictions has raised petrol prices, pushing headline inflation higher.
Brits’ expectations of price rises are beginning to climb in a sign that inflation could turn out to be stickier than the Bank of England, which maintains price rises are temporary, had first hoped.
The Bank’s top officials are preparing to announce their next move on interest rates this Thursday.
Despite the backdrop of inflation possibly climbing even further above the Bank’s two per cent target, the City has reined in bets on Threadneedle Street hiking rates for the first time in three years from a record low of 0.1 per cent.
Uncertainty over the damage the Omicron variant could inflict on the UK economy will prompt the monetary policy committee to remain cautious, according to Bank of America.
Analysts at Goldman Sachs agree, but highlight the Bank will pursue “a short delay” in hiking rates “to gather more information on Omicron and indicate that a hike remains appropriate in coming months” to curb runaway inflation.
An anaemic GDP clip last Friday, in which the UK economy squeezed out just 0.1 per cent of growth in October, lower than the 0.4 per cent consensus, will also likely deter rate setters from voting to tighten policy.
“A sluggish private economy and weaker than expected demand will in our view nudge the BoE to delay a hike,” Bank of America said.
However, “with the labour market data as tight as it could be, and inflation running hot,” the Bank may be forced to tighten policy, Deutsche Bank predicts.
Latest jobless figures on Tuesday, released ahead of the Bank’s decision, will be a key indicator rate setters will watch to help inform how they vote on borrowing costs and quantitative easing.
The Bank has stressed previously it needs to see evidence of the labour market holding steady after the furlough scheme ended at the end of September. Tuesday’s data, for October, will be the first that measures the jobs market without the support of the furlough scheme.
The consensus forecast is for the unemployment rate to edge back to 4.2 per cent from 4.3 per cent. Payrolled employees are also forecast to build on last month’s 160,000 gain, suggesting the labour market is in a strong position to absorb a rate hike.
The latest purchasing managers’ index from IHS Markit is out on Thursday and will provide a more timely indication of how the UK economy is responding to the emergence of the Omicron variant.
Weaker business confidence generated by uncertainty over the possible impact the new strain will have on demand will push the manufacturing and services PMIs lower, down to 57.3 and 56 respectively, Deutsche Bank predicts.