LONDON: Warnings that Britain is heading for a sharp increase in inflation have intensified after a key business survey showed companies in the services sector are grappling with their biggest rise in costs for almost six years. The report into the UK economy’s biggest sector, which spans banks to hotels and hairdressers, showed firms suffered their first slowdown for four months in January. This suggests the economy lost momentum at the start of 2017. Companies reported higher fuel and labour costs and said they had to pay more for imports because of the pound’s sharp fall since the referendum. There were also further signs that companies were passing on some of that cost burden to customers in higher prices. That will add to concerns that rising inflation is eroding household budgets and will hit consumer spending, a key driver of the UK economy.
Living costs have started to rise at a faster pace in recent months on the back of rising energy prices and the pound’s weakness. Inflation hit its highest level for more than two years in December at 1.6%, and some forecasters see it going above 3% this year. Food companies have blamed higher costs for imported ingredients as they raise prices in the shops on goods such as Marmite, Cadbury’s Freddo bars and Weetabix. Prices at the pump have also risen and clothing prices are also expected to increase. High street retailer Next has warned the devaluation of the pound will hike the price of clothing by up to 5% in the coming months. In the latest sign living costs are rising, Npower said on Friday it was raising prices for more than a million customers, pushing up dual fuel bills rise by an average of 9.8% or £109 a year. Despite costs pressures, services firms polled in the latest Markit/Cips UK services PMI report (pdf) indicated that they remained optimistic about the year ahead and they continued hiring workers, albeit at a slower pace.
