Over half of UK firms to raise prices as inflation bites

·Finance Reporter, Yahoo Finance UK
·3-min read
prices  workers in a factory. UK factory output grew at its fastest pace for six months in January despite the spread of the Omicron variant of coronavirus amid signs that the supply chain crisis has passed its peak, a report has shown. Issue date: Tuesday February 1, 2022.
Businesses across the UK are getting ready to hike prices amid soaring inflation. Photo: PA.

Nearly six out of 10 businesses plan on rising prices over the next 12 months as inflation continues to rise, according to a survey.

The Lloyds (LLOY.L) Bank Business Barometer revealed 58% of businesses anticipated higher prices for their products or services in response to ongoing inflationary pressures. This marks a three point increase from last month (55%) laying bare that increasing price expectations are evident across industry sectors.

Paul Gordon, managing director for SME and mid corporates at Lloyds Bank Commercial Banking, said: “The challenges that businesses are facing continue to grow with no clarity on when inflationary or supply-chain pressures will ease alongside the ongoing war in Ukraine.

Read more: UK private sector output hit by inflation and Ukraine war

“To respond to this, businesses should ensure they keep a tight rein on input costs to ease pressure on margins wherever possible and keep in close contact with suppliers so disruption to any raw materials is kept to a minimum.”

Consumer price inflation hit 7% in March, more than three times higher than the Bank of England’s 2% target, with energy bills and fuel costs largely behind the rise. March’s reading was a fresh 30-year high, topping the record set in February.

The BoE has already raised interest rates three times since December, more than any other minor central bank. Traders believe Threadneedle Street is looking to move rates from the current 0.75% level to 2.5% by this time next year.

Employment intentions eased for a second month, hitting the lowest levels since August 2021 with the proportion of firms expecting to increase their workforce falling to 44%.

Despite lower employment expectations, there is little indication in the data that firms expect pay pressures to moderate.

Almost a third (27%) of firms expect average wage growth of 3% or more in the next twelve months, up from 25% last month and 10% a year ago.

The proportion of firms expecting at least 3% pay growth is particularly high among larger companies compared with smaller firms, including 42% of firms with turnover of £5m-£25m.

Business confidence remained steady at 33% in April following a significant drop of 11 points in March.

Read more: UK business optimism tanks as prices rise at their fastest pace in 40 years

Hann-Ju Ho, senior economist at Lloyds Bank Commercial Banking, said: “April’s data is mixed and follows the significant decline in business confidence in March after Russia’s invasion of Ukraine. Although firms reported a partial recovery in their trading prospects, optimism for the wider economy declined for a second successive month.

“Positives remain as overall confidence is above the long-term average, but it is still expected that growth will moderate over the coming months and many businesses will remain cautious as they face into these headwinds.”

Over half of firms (52%) reported an improvement in their trading prospects, up three points from 49%, according to the barometer. However, net optimism about the wider economy fell for a second successive month, to 26%, down six points from 32%.

Watch: How does inflation affect interest rates?

 

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