The pound’s plunge this year is boosting U.K. companies’ costs and forcing them to respond.
The Confederation of British Industry’s December survey shows that manufacturers expect to lift prices by the most in more than five years over the next three months. Inflation expectations were the highest in the food and drink sector, it said on December 16.
The CBI said sterling’s 17% depreciation “continues to ramp up pressure on prices.” Its report comes days after data showed U.K. import prices surged almost 15% in November from a year earlier, the biggest increase in five years. Separate figures showed factory-gate prices rose the most since April 2012 on an annual basis.
The CBI also said its measure of manufacturing output reached its highest level since July 2014, with only four out of 18 sectors seeing a decline in the latest three months.
Accelerating inflation as the pound weakens has been one of the main repercussions from the U.K.’s decision in June to leave the European Union. The Bank of England expects consumer-price growth to quicken to 2.8% in 2018 from 1.2% currently.
Even with forecasts for a slowdown in economic growth in 2017, the inflation picture has prompted the BOE to adopt a “neutral” position, meaning its next move in interest rates could be either up or down.
By John Ainger