U.K. Companies See Inflation Floodgate Lifting On Pound Drop
U.K. businesses will have no choice but to raise prices as the weak pound continues to force up the cost of imports, according to the British Chambers of Commerce.
The pressure is greatest on manufacturers, with the balance of companies expecting to pass on cost increases to consumers over the next three months rising to the highest since records began in 1989. The share of service sector companies predicting an uplift in prices was also the biggest since 2011, according to the survey published Thursday.
“Rising prices will be a key challenge to the outlook for the U.K. economy over the next year,” said Suren Thiru, head of economics at the BCC. “Growth prospects in the near-term are expected to be more subdued, weighed down by rising inflation and the uncertainty surrounding Brexit.”
Inflation will likely put a squeeze on consumers as household goods become more expensive, while wages struggle to keep pace. Although economic growth will slow this year, the Bank of England forecasts that price growth will exceed its 2 percent target as rising costs filter through to the economy.
“Higher inflation is a threat to working people’s living standards,” said Jonathan Reynolds, a spokesman for the opposition Labour Party, in a statement about the report.
The pound has lost 17 percent of its value since the June 23 Brexit referendum as investors face uncertainty over the U.K.’s future relationship with the European Union. Against the euro, sterling has fallen 11 percent.
Despite tepid forecasts, the U.K. economy has so far held up better than many expected. The BCC also reported that manufacturing sustained its growth from the third quarter, with the pound’s drop helping some exporters. Both the manufacturing and service sectors reported elevated confidence in sales, hiring expectations and investment.
“Firms are alive to the fact that change is coming,” said Adam Marshall, Director General of the BCC, on Bloomberg Television. “What they’re trying to do is take advantage of the space they have to do as well as they can in the intervening period.”
The BCC report was compiled from a survey of 7,250 businesses between Nov. 7 to Nov. 28.
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