LONDON, Jan 25 (Reuters) - British manufacturers expect to
raise prices by the most since 1977 over the next three months,
as they wrestle with serious labor shortages and the biggest
increase in costs since 1980, a quarterly survey showed on
The Confederation of British Industry (CBI) data look set to
reinforce the Bank of England's fears that high inflation is
getting baked into businesses' pricing plans, bolstering the
chances it will hike interest rates again next week.
The CBI survey showed a rise in factory orders, greater
investment and the strongest export demand growth since July
2018, but overall optimism fell as businesses struggled with
sharply rising costs for raw materials and some workers.
"Global supply chain challenges are continuing to impact UK
firms, with our survey showing intense and escalating cost and
price pressures," CBI chief economist Rain Newton-Smith said.
British consumer price inflation hit its highest in almost
30 years in December at 5.4%, though there had been some signs
in other surveys that the pace of cost growth for businesses was
beginning to slow.
Previously released data showed annual producer price
inflation slowed in December for the first time since May 2020
and input costs fell on the month for the first time since
August 2020. January's IHS Markit Purchasing Managers' Index
showed the smallest factory input costs rise since April 2021.
BACK TO THE 1970S?
However, Tuesday's CBI survey showed that the proportion of
manufacturers expecting domestic prices to rise over the next
three months was its highest since April 1977. The export prices
expectations balance was the highest since January 1980.
Costs for manufacturers in the three months to January rose
by the most since April 1980, and the percentage of firms
reporting limited capacity due to a lack of skilled workers was
the highest since October 1973 at 42%.
Central bankers have generally rejected comparisons with the
wage-price spirals that plagued most Western economies in the
1970s, but last week one BoE official said it was possible there
was a shift away from the more benign patterns of the 2010s.
Manufacturers' optimism about the current business situation
and prospects for the year ahead both fell to their lowest since
January 2021, when the economy was still in lockdown.
However, new orders picked up over the past three months and
January's monthly gauge of new orders held unchanged at +24,
just below November's record reading of +26. Economists polled
by Reuters had forecast a drop to +22.
Investment plans also strengthened, with plant and machinery
investment intentions at their highest since April 1988 -
possibly reflecting temporary tax incentives for this type of
investment as well as strong underlying demand.
(Reporting by David Milliken
Editing by William Schomberg and Gareth Jones)