Rising prices of energy and raw materials are hitting UK businesses hard, particularly in the hospitality sector, according to official data released on Thursday that fuel concerns about a further rise in consumer inflation and a new economic downturn.
Half of UK businesses reported an increase in the prices of materials, goods or services bought in March, according to a comprehensive survey published by the Office for National Statistics.
The proportion rises to 77 per cent in the accommodation and food services sector and is well above 50 per cent in construction, retail trade and manufacturing.
Some of the rising costs were passed on to consumers, with 23 per cent of businesses also reporting increased prices of sold goods and services. This points to consumer inflation rising further in the months ahead after hitting a 30-year high in March. However, about two in five companies reported they had had to absorb the rising costs.
Jack Sirett, head of dealing at global financial services firm Ebury, said the figures laid bare the “challenges facing companies as well as the further pain that is still to come the way of customers”.
The data comes as demand is also weakening. One in five businesses reported that their turnover decreased in March compared with the previous month, ONS data showed, a share that rises to more than one in three in the hospitality sector.
The figures were released as businesses in the services sector reported the highest input costs since records began in 1996, according to the final reading of April’s S&P Global purchasing managers’ survey. The closely watched survey also showed business confidence dropping to the lowest level in a year and a half.
Growth in the services sector, which makes up 80 per cent of the UK economy, slowed sharply with the headline PMI index for services dropping to 58.8 in April from 62.6 in the previous month.
Andrew Harker, economics director at S&P Global, said: “The twin headwinds of the cost of living crisis and the war in Ukraine started to bite on the UK service sector during April.” He added that “worryingly, companies seem to be expecting impacts to be prolonged, with business confidence dropping to the lowest in a year-and-a-half”.
Economic growth had slowed to a crawl in February with Thursday’s data pointing to faltering activity in the most recent months.
The figures show “that the intensifying squeeze on households’ real disposable incomes is starting to slow the economic recovery”, said Samuel Tombs, economist at Pantheon Macroeconomics. He expected the economy to shrink by 0.4 per cent in the second quarter and to grow modestly thereafter.
He added that “the growth wobble in Q2 would reinforce the Monetary Policy Committee’s case for only ‘modest’ increases in its benchmark interest rate in the next few months”. Tombs said he expected no more than a 25 basis points rise on Thursday and a further 25 basis points increase in August, leaving the rate at 1.25 per cent at the end of this year.
Source: Economy - ft.com
