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Strongest price pressures on customers in the UK

 British businesses reported more high-speed growth at the beginning of October, helped by foreign travel. However, the Bank of England seems to be worried about record rises in the prices, pressuring consumers.

A day before the announcement of the Bank of England, the IHS Markit Composite Purchasing Managers’ Index (PMI) grew to 57.9 from 54.8 in September. It showed its highest since July and above an initial flash estimate of 56.9.

The narrower services PMI surged to 59.2, which is a three-month high. It arrives at this point from 55.5 in September. Reduced quarantine requirements and testing are to more foreign travel bookings. Last month the economy regained momentum despite supply-chain interruptions. This situation affected petrol stations suffering from fuel shortages.

However, according to the survey data, several businesses reported a surge in operating costs. Senior economic advisor, Martin Beck, said that Monetary Policy Committee members would note further evidence of inflationary pressures. He mentioned that these members would be voting for an increase in Bank Rate in November’s meeting.

Meantime, financial markets expect the Bank of England to be the first big central bank to increase interest rates since the beginning of the coronavirus pandemic. They expect it to increase Bank Rate to 0.26% from 0.11% on Thursday. However, many economists think that it will wait and postpone until February.

Overview

According to IHS Markit, tight labor market conditions affected the prices.

IHS Markit economics director Tim Moore said that many customer service providers commented on free vacancies. It came after staff left for higher wages, despite the company’s efforts to boost pay and conditions. He added that the impact of labor shortages was another rise in unfinished work and a greater willingness to pass on higher prices to new clients. This time Businesses were in more need to raise prices than at any period since 1999.

Last month, Governor Andrew Bailey said that the central bank would need to act if it sees a risk that inflation expectations will surpass its 2.1% target. However, some policymakers see the surge in inflation as driven by temporary issues and higher energy prices, which Bank of England rate increases will do nothing to help. EY ITEM Club’s Beck said that those pressures still seem to result from the adjustment efforts of an economy arising from hibernation. IHS Markit said increasing prices caused business optimism in the services sector to drop to its lowest since January.

 

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