THE spectre of inflation returned to stalk the UK economy today as new data revealed near-record rises in both factory costs and property prices.
Average house prices surged by 2.1% in August — the second largest monthly jump in 15 years — lifting the cost of a typical home to £248,857.
Property prices have soared 11% in the past 12 months according to Nationwide, and now stand around 13% higher than when the pandemic struck. In London, where growth is lagging behind the national picture, an average home costs £511,190.
Robert Gardner, the mortgage lender’s chief economist, said: “The bounce back in August is surprising. It seemed more likely that the tapering of stamp duty relief at the end of June would take some of the heat out of the market.”
He added: “Consumer confidence has rebounded in recent months while borrowing costs remain low.”
Meanwhile, the closely-watched IHS Markit/CIPS Manufacturing Purchasing Managers’ Index (PMI) dipped to 60.3 last month, its weakest level since lockdown eased in March.
The slowdown in the rate of growth, from a high of more than 65 in May, was blamed on shipping delays, Brexit staff shortages and supply chain snarl-ups chafing on swathes of the economy.
They pushed prices up at the fourth fastest rate since 1996 with manufacturers confessing to passing on at least part of the cost increases to customers.
Rob Dobson, director at IHS Markit, said: “Rates of increase in both input costs and selling prices remained close to record highs in August, as rising demand chased constrained supply and companies moved to pass on price increases to clients and consumers.
“This is affecting most markets, but especially autos, metals, foodstuffs and electronics. The impact is feeding through to rapid price inflation.”
Despite these drags, confidence among executives is at a three-month high with almost 66% of companies indicating they expect output to rise over the coming year.
Employment has risen for the eighth month in a row, leading to double-digit salary bumps across sectors from truck driving to financial services and tech.
Martin Beck, at EY ITEM Club, said: “The survey suggests the reason for weaker growth lay with supply rather than demand. New orders continued to grow strongly, but shortages of materials and staff meant manufacturers struggled to satisfy orders.”
The Bank of England thinks inflation, presently 2%, will rise to 4% this year before dropping back.
Some in the City fear the Bank is misjudging both the pace of the recovery and the impact of supply chain problems, and think it needs to move faster to raise interest rates, which would increase borrowing costs and have a knock-on cooling effect on prices.