CBI Data Shows Record Cost Inflation For Firms In UK’s Services Industry

A survey of businesses in the British services sector released on Tuesday showed that the input costs for companies in the sector are increasing at their fastest pace in more than 20 years.  

This finding highlights the reason why interest rates could soon be raised by the country’s central bank – the Bank of England may soon raise interest rates.

Since the survey began in 1998, the pace of rise in input costs for business as well as consumer services companies was the fastest. The report was prepared by the Confederation of British Industry and is done every quarter to gauge the mood of the huge service industry of the United Kingdom.

A separate survey conducted by Lloyds Bank for the sector revealed that preparations for increase prices for their consumers were being made by 50 per cent of the businesses surveyed, which is a record in its own right. The survey also showed that more than 25 per cent of the businesses anticipate a rise in pay by 3 per cent or more during the next 12 months.  

“Record growth in costs is threatening to put a winter freeze on the service sector recovery next quarter,” CBI economist Charlotte Dendy said.

Both the business surveys were conducted in the first part of November which was prior to the emergence of news about the Omicron variant of Covid-19 which has, since then, impacted confidence of investors in the financial market as they foresee about a 60 per cent possibility of the BoE being forced to raise interest rates in its December review.  

In October, the consumer price inflation in Britain was at 4.2 per cent which was the highest in 10 years and according to the expectations of the BoE, it could reach as much as 5 per cent by next year.  

Higher interest rates will not alleviate the pressures of a worldwide spike in energy costs and supply chain issues in the short term. However, they may mitigate the negative consequences that would occur if businesses raised prices and employees demanded greater compensation in expectation of persistently rising inflation.

According to Tuesday’s CBI report, firms believe they will be unable to fully pass on increasing expenses. Despite the fact that average selling prices are likely to soar to new highs, profit growth for services businesses is expected to slow in the following three months due to rising costs.

Business and professional services firms have been recruiting at the quickest rate since 2015, according to the CBI.

Veterinarians, optometrists, auditors, animators, and truck mechanics were the professions whose clients were having the most difficulty filling, according to data provided on Tuesday by recruiting website Indeed.

(Adapted from USNews.com)

Categories: Economy & Finance, Regulations & Legal, Strategy, Sustainability

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