According to the results of a business survey released on Tuesday, costs for businesses are rising at their fastest rate in more than 2 decades for Britain’s services sector. As a result the Bank of England is likely to soon raise interest rates.
In a statement, the Confederation of British Industry said, quarterly survey of the services sector showed the quickest growth in costs for both business and consumer services companies since the survey began in 1998.
Separate data from Lloyds Bank showed a record 50% of businesses plan to raise prices and a quarter of them expect to raise pay by 3% or more over the next 12 months.
“Record growth in costs is threatening to put a winter freeze on the service sector recovery next quarter,” said CBI economist Charlotte Dendy.
Incidentally, both surveys took place in the first half of November, before the onset to the new COVID-19 variant Omicron which has dented the confidence of investors in financial markets, thus increasing the likelihood of the BoE raising interest rates in December.
In the short run, higher interest rates will not reduce pressure from a global surge in energy prices and supply chain realignments. But they may reduce knock-on effects that would come if companies increase prices, and workers ask for higher pay, in anticipation of permanently higher inflation.
Data released by CBI showed businesses thinking they will be unable to pass on higher costs in full to consumers. While average selling prices are expected to rise by a record amount, profit growth is expected to stall over the coming three months for services firms, due to rise in costs.
Data released on Tuesday, from recruitment website Indeed, showed vets, auditors, optometrists, animators and truck technicians were the roles customers were finding hardest to fill.