Inflation fears grow as UK factory prices surge

Cost pressures on UK firms have gone up at a record level, suggesting that the current surge in consumer prices may be more than just a blip.

A closely watched survey, produced by IHS Markit/CIPS, showed input costs rose at the fastest rate for 13 years.

And inflation of prices charged by firms hit its highest since records began in 1999, as factories struggled to source raw materials.

Consumer price inflation hit a two-year high of 2.1% in the year to May.

If firms are paying more for components and putting up their wholesale prices, that suggests that retail prices are set to go up even further.

The full survey, known as the IHS Markit/CIPS Composite Purchasing Managers’ Index (PMI), painted a picture of a fast-growing economy as the easing of coronavirus curbs unleashes pent-up demand.

It gave a reading of 61.7, based on initial readings for June, down only slightly from 62.9 last month. Any figure above 50 indicates expansion.

“Businesses are reporting an ongoing surge in demand in June as the economy reopens, led by the hospitality sector,” said Chris Williamson, chief business economist at IHS Markit.

The figures come as the Bank of England’s Monetary Policy Committee (MPC) prepares to announce its latest interest rate-setting decision on Thursday.

If the UK economy starts to show signs of overheating, MPC members will come under pressure to raise rates in order to slow rising prices.

Even so, no immediate change in policy is expected, with the Bank taking the view that the pick-up in inflation is likely to be temporary.

Concern about price pressures is not confined to the UK, however.

Across the Atlantic, a top economic adviser at the White House, Prof Cecilia Rouse, has played down concerns that President Joe Biden’s $1.9tn (£1.4tn) economic stimulus programme is driving up US inflation.

Prof Rouse told the BBC’s Today programme that the US recovery from the pandemic had been “spectacular”.

But she acknowledged there would be bumps in the road with inflationary pressures, which she described as “transitory”.

The US economy has already regained the output lost during the pandemic, putting it well ahead of other similar nations.

Prof Rouse dismissed fears that extra government borrowing and spending was itself helping build up an inflationary problem.

“We see evidence of a big economy being knit back together,” she said.

“We see raises rising at the lower end of our wage distribution, workers are having some power.

“We’re in a period of turbulence as we come out of this pandemic and recession, but so far, data suggests we will get through this.” – bbc.com