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UK inflation warnings intensify as service sector costs rise UK inflation warnings intensify as service sector costs rise
(about 1 hour later)
Warnings that Britain is heading for a sharp increase in inflation have intensified after a key business survey showed companies in the services sector grappled with their biggest rise in costs for almost six years. Warnings that Britain is heading for a sharp increase in inflation have intensified after a key business survey showed companies in the services sector are grappling with their biggest rise in costs for almost six years.
The report into the UK economy’s biggest sector, which spans banks to hotels and hairdressers, showed firms suffered their first slowdown for four months in January. This suggests the economy lost momentum at the start of 2017.The report into the UK economy’s biggest sector, which spans banks to hotels and hairdressers, showed firms suffered their first slowdown for four months in January. This suggests the economy lost momentum at the start of 2017.
Companies reported higher fuel and labour costs and said they had to pay more for imports because of the pound’s sharp fall since the referendum. There were also further signs that companies were passing on some of that cost burden to customers in higher prices. That will add to concerns that rising inflation is eroding household budgets and will hit consumer spending, a key driver of the UK economy.Companies reported higher fuel and labour costs and said they had to pay more for imports because of the pound’s sharp fall since the referendum. There were also further signs that companies were passing on some of that cost burden to customers in higher prices. That will add to concerns that rising inflation is eroding household budgets and will hit consumer spending, a key driver of the UK economy.
Living costs have started to rise at a faster pace in recent months on the back of rising energy prices and the pound’s weakness. Inflation hit its highest level for more than two years in December at 1.6%, and some forecasters see it going above 3% this year.Living costs have started to rise at a faster pace in recent months on the back of rising energy prices and the pound’s weakness. Inflation hit its highest level for more than two years in December at 1.6%, and some forecasters see it going above 3% this year.
Food companies have blamed higher costs for imported ingredients as they raise prices in the shops on goods such as Marmite, Cadbury’s Freddo bars and Weetabix. Prices at the pump have also risen and clothing prices are also expected to increase. High street retailer Next has warned the devaluation of the pound will hike the price of clothing by up to 5% in the coming months.Food companies have blamed higher costs for imported ingredients as they raise prices in the shops on goods such as Marmite, Cadbury’s Freddo bars and Weetabix. Prices at the pump have also risen and clothing prices are also expected to increase. High street retailer Next has warned the devaluation of the pound will hike the price of clothing by up to 5% in the coming months.
In the latest sign living costs are rising, Npower said on Friday it was raising prices for more than a million customers, pushing up dual fuel bills rise by an average of 9.8% or £109 a year.In the latest sign living costs are rising, Npower said on Friday it was raising prices for more than a million customers, pushing up dual fuel bills rise by an average of 9.8% or £109 a year.
Despite costs pressures, services firms polled in the latest Markit/Cips UK services PMI report (pdf) indicated that they remained optimistic about the year ahead and they continued hiring workers, albeit at a slower pace.Despite costs pressures, services firms polled in the latest Markit/Cips UK services PMI report (pdf) indicated that they remained optimistic about the year ahead and they continued hiring workers, albeit at a slower pace.
The 3 UK #PMI surveys show companies' costs are rising at the joint-fastest rate since the global financial crisis pic.twitter.com/wOVzjoqiIvThe 3 UK #PMI surveys show companies' costs are rising at the joint-fastest rate since the global financial crisis pic.twitter.com/wOVzjoqiIv
The headline index on the report dipped to 54.5 in January from 56.5 the month before. January marks the first time the main activity reading has declined for four months and it was below forecasts for 55.8 in a Reuters poll of economists.The headline index on the report dipped to 54.5 in January from 56.5 the month before. January marks the first time the main activity reading has declined for four months and it was below forecasts for 55.8 in a Reuters poll of economists.
Chris Williamson, chief business economist at the survey’s compilers, IHS Markit, said the January slowdown followed a strong finish to 2016. The services report and similar surveys out earlier this week on manufacturing and construction still indicated a “buoyant start” to 2017 for the UK economy, he added.Chris Williamson, chief business economist at the survey’s compilers, IHS Markit, said the January slowdown followed a strong finish to 2016. The services report and similar surveys out earlier this week on manufacturing and construction still indicated a “buoyant start” to 2017 for the UK economy, he added.
“The PMI surveys are collectively signalling that GDP will increase by a robust 0.5% in the first quarter, if current growth is sustained in coming months,” said Williamson. That would compare with an official estimate that GDP expanded 0.6% in the final quarter of 2016.“The PMI surveys are collectively signalling that GDP will increase by a robust 0.5% in the first quarter, if current growth is sustained in coming months,” said Williamson. That would compare with an official estimate that GDP expanded 0.6% in the final quarter of 2016.
The report follows the Bank of England’s move on Thursday to revise its growth forecast for the UK economy sharply higher, to 2% from the 1.4% it had predicted in November. The Bank also surprised financial markets by edging down its forecast for inflation.The report follows the Bank of England’s move on Thursday to revise its growth forecast for the UK economy sharply higher, to 2% from the 1.4% it had predicted in November. The Bank also surprised financial markets by edging down its forecast for inflation.
The PMI report, which covers firms making up about 50% of the economy, suggested that companies’ costs were rising at the fastest rate since March 2011 with pressure from more expensive imports, higher fuel and freight prices and bigger wage bills.The PMI report, which covers firms making up about 50% of the economy, suggested that companies’ costs were rising at the fastest rate since March 2011 with pressure from more expensive imports, higher fuel and freight prices and bigger wage bills.
“Supply chain managers reported that cost burdens were weighing down more heavily and impacting on their business for the seventh time in eight months,” said David Noble, group chief executive officer at the Chartered Institute of Procurement and Supply, which co-publishes the report.“Supply chain managers reported that cost burdens were weighing down more heavily and impacting on their business for the seventh time in eight months,” said David Noble, group chief executive officer at the Chartered Institute of Procurement and Supply, which co-publishes the report.
“The triple whammy of rising fuel costs, salaries and higher import prices were keenly felt, and these rising costs may have also had an effect on the number of new jobs on offer, reflected in the rate of job creation which was at a five-month low.”“The triple whammy of rising fuel costs, salaries and higher import prices were keenly felt, and these rising costs may have also had an effect on the number of new jobs on offer, reflected in the rate of job creation which was at a five-month low.”
Strong pressure on costs led firms to increase their charges in January, at a pace unchanged from December’s 68-month record, the PMI report said.Strong pressure on costs led firms to increase their charges in January, at a pace unchanged from December’s 68-month record, the PMI report said.
“Inflationary pressures are becoming increasingly concerning,” said Martin Beck, senior economic adviser to the forecasters EY Item Club, commenting on the poll. “It looks increasingly likely that we will not escape a steep pickup in consumer price inflation through 2017.”“Inflationary pressures are becoming increasingly concerning,” said Martin Beck, senior economic adviser to the forecasters EY Item Club, commenting on the poll. “It looks increasingly likely that we will not escape a steep pickup in consumer price inflation through 2017.”
The PMI report polls private sector companies but does not cover retailers or government services. It therefore covers about half the economy, whereas official data on services published with more of a lag covers almost 80%.The PMI report polls private sector companies but does not cover retailers or government services. It therefore covers about half the economy, whereas official data on services published with more of a lag covers almost 80%.