UK inflation to trend higher as firms hoist prices amid cost barrage
Inflation will trend even higher in the coming months driven by UK businesses lifting prices to cope with intensifying wage pressures, reveals a fresh survey published today.
Nearly half of firms are expecting to hike pay at least one per cent over the coming year, leading to them raising prices to protect margins, according to research by Lloyds Bank.
The fresh survey provides more evidence illustrating the scale of inflationary pressures building in the UK economy.
Figures published by the Office for National Statistics show the rate of price increases hit 5.5 per cent last month, the highest level in nearly 30 years.
This rate is likely to scale even higher, with nearly half of companies pencilling in price rises over the coming year.
Escalating tensions in the Russia-Ukraine conflict sparked a flurry of economists to ramp up forecasts for their expected inflation peak.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said higher energy prices triggered by concerns over Moscow choking gas supplies in retaliation to Western sanctions is likely to push the cost of living peak to 8.2 per cent.
Analysts at fund manager Investec said higher gas prices could result in the energy price cap being lifted to £3,000 in October.
There is a lack of consensus over whether the Bank of England will continue with its rapid tightening cycle this year due to the complications associated with the potential fallout of the Russia-Ukraine war.
Lloyds’ research revealed the severity of concern among businesses about the damaging impact a higher interest rate environment could have on trading conditions.
Despite inflationary fears, business confidence climbed to a five-month high of 44 per cent, driven by optimism about supply chain disruption easing and improving trading conditions.
Hann-Ju Ho, senior economist Lloyds, said: “It’s extremely encouraging to see such an improvement in business confidence reaching its highest level since September, fuelled by trading prospects reaching their highest level since the start of pandemic.”