One in three UK businesses worried about rising inflation

Suban Abdulla
·3-min read
Manufacturers cited raw materials costs as the key driver of rising prices in the industry, with the BCC pointing to "continued post-Brexit and COVID-19 disruption" to supply chains. Photo: Getty
Manufacturers cited raw materials costs as the key driver of rising prices in the industry, with the BCC pointing to "continued post-Brexit and COVID-19 disruption" to supply chains. Photo: Getty

A growing number of British businesses have voiced concerns over rising inflation, with the balance of manufacturers expecting price increases climbs to a four-year high. 

New research by the British Chambers of Commerce (BCC) shows two in five businesses (38%) in the first quarter of 2021 expect to see price rises in the next three months. This is an increase from 25% in the previous quarter. 

In contrast, of the 5,800 respondents, only 5% of companies are anticipating a decrease. 

The figures demonstrate that nearly 30% businesses surveyed between 15 February to 11 March cited inflation as a cause of concern in the coming months, up from 25% in the prior three months.

On a sectoral level, the balance of manufacturing firms expecting the price of their goods to increase in the next quarter rose sharply to +46%, from +27% in the previous quarter. 

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According to the BCC this is now at its highest level since the fourth quarter of 2017, when the post-EU referendum devaluation of sterling (GBPEUR=X) pushed UK consumer price inflation to 3%.

The balance is the percentage of those firms reporting an increase minus those reporting a decrease. 

Manufacturers cited raw materials costs as the key driver of rising prices in the industry, with the BCC pointing to "continued post-Brexit and COVID-19 disruption" to supply chains.  

87% of production and manufacturing and 72% construction firms cited raw material prices in the first quarter 2021, up from 80% and 67% respectively in the previous quarter.

READ MORE: Brexit and COVID-19 combination hit UK firms' first quarter export sales

In the services sector, the balance of companies expecting prices to increase over the next three months rose to +27%, from +15% and is now at its highest level since Q1 of 2020.

Within services, retail and wholesaling firms were most likely to expect price rises (56%) in the next quarter, citing raw material costs as a key pressure.

This was followed by transport and distribution firms at 48%.

Meanwhile, 45% of hotel and catering sector businesses anticipate price increases in the next three months, as COVID restrictions ease.

In comparison, professional and consumer services firms were least likely to expect an increase in prices, at 26% for both sectors.

Suren Thiru, head of economics at the BCC, said: "While inflation is currently subdued, the triple effect of the rise in the energy price cap in April, the release of pent-up demand as COVID restrictions ease and persistent post-Brexit border disruption is likely to drive inflation higher over the near term, possibly above the Bank of England 2% inflation target.

"However, such drivers of inflation are typically transitory in nature and given the amount of spare capacity in the economy, any price spike is likely to be temporary. Therefore, there should be sufficient scope for the MPC to keep interest rates on hold for some time, particularly given the uncertainty that still surrounds the outlook for the UK economy."

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