British businesses prepare to hike prices en masse

British businesses are bracing for a cost assault by preparing to hike prices, reveals fresh research released today.

Almost three in five firms expect to lift prices in the next three months, the highest proportion ever recorded, according to the British Chambers of Commerce (BCC).

Intention to lift prices is seeping into most corners of the UK economy.

The retail, manufacturing and construction sectors all notched the greatest proportion of businesses expecting prices to rise in the next three months since the BCC started tracking the data.

The survey of around 5,500 businesses underlines the strain British firms are under to remain profitable amid swelling costs.

The cost of buying materials jumped over 14 per cent over the last year, according to the Office for Nationals Statistics (ONS).

A resurgence in demand for oil and other energy components as countries around the world push to get their economies back to pre-pandemic strength has sent prices soaring. 

Snarled up supply chains have generated shortages of crucial materials, raising prices in the process.

The ONS estimates manufacturers are having to pay 80 per cent more than they were last year to secure crude oil.

Some 94 per cent of manufacturers expect cost pressures to emanate from raw material costs soaring, while two in three firms across the UK identify inflation as a top concern in the coming quarter, also a record high.

One in four respondents to the BCC’s survey also cited higher borrowing costs as a worry.

Suren Thiru, head of economics at the BCC, said: “The record rise in price pressures suggests that a substantial inflationary surge is likely in the coming months.”

“Rising raw material costs, higher energy prices and the reversal of the VAT reduction for hospitality are likely to push inflation above six per cent by April,” he added.

Thiru’s prediction, if it materialises, will leave the Bank of England hot under the collar as it would push inflation to more than triple the central bank’s two per cent target.

The Bank hiked rates for the first time in three years last month, lifting them 15 basis points from a record low 0.1 per cent. 

However, markets expect further hikes from the Bank in 2022, predicting rates will hit one per cent by the end of the year.

Thiru warned a combination of soaring Covid-19 cases and plan B measures could cause the British economy to suffer short-term damage.

“The UK economy is starting 2022 facing some key challenges. The renewed reluctance among consumers to spend and staff shortages triggered by Omicron and Plan B may mean that the UK economy contracts in the near term, particularly if more restrictions are needed,” he said.

The BCC’s survey, which is a more timely measure of economic activity, has stalled in recent months, potentially providing a snapshot of things to come.

Growth was weak even before the emergence of Omicron, with GDP rising just 0.1 per cent in October.