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Two in three UK firms expect to raise prices in Christmas run-up, poll finds

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Nearly two-thirds of UK manufacturers expect to raise their prices in the run-up to Christmas after being hit by mounting cost pressures, a leading employers’ group has said.

The British Chambers of Commerce said inflation expectations had risen to their highest since its records began at the end of the 1980s, with 62% of industrial firms planning price hikes over the next three months.

The BCC’s warning came as the UK’s biggest bakery chain Greggs and the upmarket confectioner Hotel Chocolat both reported evidence of growing price pressures.

Greggs, which has been affected by the nationwide shortage of HGV drivers, said it was facing shortages of staff and ingredients, adding that despite hedging, costs would rise in the lead up to Christmas.

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Hotel Chocolat said prices would rise by up to 9% on the majority of its ranges as a result of dearer ingredients, labour and transport.

The BCC said the “spiralling” cost of raw materials rather than higher wages was to blame for the price rises. Crude oil prices rose to a fresh three-year high of more than $82 a barrel on Tuesday while natural gas prices in Europe reached record highs.

Petrol prices on UK forecourts averaged just over 136p a litre on Monday – the highest in eight years – while growing concerns about the outlook for UK inflation sent the yield (or interest rate) on 10-year government debt to 1.09%, its highest since May 2019.

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The latest official cost of living data from the Office for National Statistics showed the annual inflation rate rising from 2% to 3.2% in August – its largest one month jump on record. The Bank of England expects a further increase to more than 4% by the end of the year.

In its quarterly update on the state of the economy, the BCC said that, while activity had picked up, the recovery would have been stronger had it not been for supply chain pressures, labour shortages and rising costs.

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It said 47% of firms across the economy reported activity was increasing – the highest percentage since the pandemic began 18 months ago. But it warned persistent weaknesses – low levels of investment and cashflow problems – were raising concerns about the durability of the recovery.

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Shevaun Haviland, the BCC director-general, said: “The supply chain crisis, alongside wider labour shortages and spiralling price rises, is clearly starting to drag on our economic recovery from Covid-19.

“Businesses are being battered by a deluge of upfront cost pressures, including huge increases in the prices of key raw materials and shipping, as well as now facing a rise in national insurance contributions. At the same time, they are losing out on opportunities for growth due to the labour shortages, despite many already raising wages and offering training.”

Haviland called for a moratorium on all policy measures that increased business costs for the rest of the parliament and “to finally deliver fundamental reform of our broken business rates system”.

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Price pressures are affecting service sector firms as well as manufacturers, according to a separate survey from IHS Markit and the Chartered Institute of Procurement and Supply (CIPS).

The monthly survey of purchasing managers found services hiking their prices at the fastest rate since IHS Markit/CIPS began publishing data in 1996, as the energy crisis and staff shortages hit the economy and pushed up inflation. Supply constraints resulted in the slowest rise in new orders since the economy began to emerge from its winter lockdown in March.

Duncan Brock, group director at CIPS, said many firms had paid higher wages to secure necessary skills while others had made staff redundant as furlough support ended and operations were restructured.

“As prices charged rose at their fastest rate since 1996, it seems the floodgates are open for higher inflation to wash through the UK economy and firms fear the growth this month may be eroded further by higher costs and shortages as we move towards the festive period,” Brock said.