One in ten firms passing on higher prices as BoE chief economist says inflation spike worse than expected
Firms are increasingly putting up prices as they pass on soaring costs, according to new figures that are likely to add to fears of a squeeze on household budgets.
Data from the Office for National Statistics (ONS) found 10% of businesses increased their prices in early September, up from 8% in mid-August and 4% in late December last year.
The figures came as the Bank of England’s new chief economist said the “magnitude and duration” of the recent upturn in inflation was proving greater than expected.
Energy bills look set to rise further
Meanwhile new data published on Thursday showed global food prices at a ten-year peak.
It all adds to a cocktail of financial worries for consumers with energy bills looking set to climb further and experts warning of a possible 5% rise in council taxes.
Regulator Ofgem acknowledged that if wholesale gas prices – which this week hit record levels – remain high the price cap on energy bills affecting millions of households, which has only just gone up by 12%, will need to go up again.
Businesses are experiencing surging costs thanks to a series of factors including supply chain strains – such as those caused by a shortage of HGV drivers – as well as recruitment difficulties and wage hikes and the rising global prices of commodities and energy.
The latest data from the ONS, recorded at the start of September, showed 29% of businesses had seen the prices of materials, goods or services bought in the last two weeks increase by more than their normal price fluctuations.
Figures also showed that while 10% of all businesses were passing higher prices on to customers, a larger number of manufacturers (25%) were doing so, as were firms involved in wholesale and retail sales and vehicle repair (23%).
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Labour shortage squeezes food supply chain
Among companies classed as providing “other service activities” – ranging from professional associations and computer repair to dry cleaning and hair dressing – 22% increased prices.
Latest official data shows consumer price inflation running at 3.2% in August, a nine-year high, and the Bank of England expects it to top 4% later this year.
The broad background to the price spiral is a sudden jolt to higher demand as pandemic restrictions ease which has left supply struggling to keep up.
In answers to a series of questions from MPs published on Thursday, BoE chief economist Huw Pill said that as the pandemic recedes and “the level of composition of global demand and supply normalise” these price pressures should ease.
“But the magnitude and duration of the transient inflation spike is proving greater than expected,” he added.
Elsewhere, an index published by the Rome-based Food and Agricultural Organisation (FAO), which tracks prices for the most globally-traded food commodities, recorded an average of 130 points last month, the highest since September 2011.
The upturn was driven by cereals and vegetable oils and meant that on a year-on-year basis, prices were up by 32.8%.
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August: BoE governor: Inflation issue will be ‘temporary’
Earlier, the Institute for Fiscal Studies (IFS), a respected economic think-tank, warned that council tax may have to rise by up to 5% a year as local authorities continue to contend with pandemic-related spending pressures and the government’s new social care policies.
At the same time, analysis by experts at Cornwall Insight suggests that the energy price cap – which affects 15 million households – could go up by another 30% when it is reviewed again next year, thanks to soaring wholesale gas prices.
Separately, a report from the National Grid showed the margin of electricity supply would be tighter this winter than a year ago – while expressing confidence that there was enough capacity to keep the lights on.
However, the grid is likely to have to utilise market alerts calling for some power stations to ramp up tight supply.
Such “margin notices”, which were also used last winter, tend to push wholesale prices up though they are now already close to levels seen at such times of stress.
Post Office campaigner Sir Alan Bates is yet to receive a reply from Sir Keir Starmer, despite writing to him over a month ago.
Sir Alan said he had written to the prime minister to remind him the “clock is still ticking” on a financial redress deadline for victims.
In his letter, he demanded a March 2025 deadline for compensation for sub-postmaster victims of the Horizon scandal.
Sir Alan confirmed to Sky News he was yet to hear back from the prime minister.
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“It was over a month ago,” he said.
“I sent him a reminder yesterday. I told him the clock is still ticking and it’s now five months from the March deadline, which I’m told is still achievable by other professionals.
“So let’s get on with it, that’s all we want. Get on with it.”
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A £15bn merger between two of the UK’s biggest mobile networks could get the green light – if they stick to their commitments to invest in the country’s infrastructure, the competition watchdog has said.
The Competition and Markets Authority (CMA) said the merger of Vodafone and Three had “the potential to be pro-competitive for the UK mobile sector”.
Announced last year, the proposed £15bn merger would bring 27 million customers together under a single provider.
The watchdog previously warned that tens of millions of mobile phone users could end up paying more if the merger went ahead.
However, the two groups recently set out plans to protect consumer pricing and boost network investment.
The CMA has now laid out a list of “remedies” required for the deal to go-ahead.
They include the networks committing to freezing certain tariffs and data plans for at least three years to protect customers from short-term price rises in the early years of the network plan.
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From September: ‘A transformation for the UK’
Stuart McIntosh, chair of the inquiry group leading the investigation, said on Tuesday: “We believe this deal has the potential to be pro-competitive for the UK mobile sector if our concerns are addressed.
“Our provisional view is that binding commitments combined with short-term protections for consumers and wholesale providers would address our concerns while preserving the benefits of this merger.
“A legally binding network commitment would boost competition in the longer term and the additional measures would protect consumers and wholesale customers while the network upgrades are being rolled out.”
Today’s announcement is provisional, with a final decision due before 7 December. The inquiry group is inviting feedback on today’s announcement by 5pm on 12 November.
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The CMA also published a list of potential solutions – which it called remedies – to issues it identified with the merger.
If the networks want the merger to go ahead, the watchdog requires Vodafone and Three to:
• Deliver a joint network plan to set out network upgrades and improvements over eight years;
• Commit to keeping certain existing tariff costs and data plans for at least three years to protect customers from price hikes;
• Commit to pre-agreed prices and contract terms so Mobile Virtual Network Operators (MVNOs) – mobile providers that do not own the networks they operate on – can obtain competitive wholesale deals.
Vodafone and Three are two of the biggest mobile firms in the UK, and their networks support a number of MVNOs including Asda Mobile, Lebara, Voxi, and Smarty.
Responding to the watchdog’s announcement, a spokesperson for Vodafone on behalf of the merger said: “The merger will be a catalyst for positive change.
“It will bring significant benefits to businesses and consumers throughout the UK, and it will bring advanced 5G to every school and hospital across the country.
“The merger is also closely aligned with the government’s mission to drive growth and to encourage more private investment in the UK.”
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Earlier this year, Three’s chief executive hit out at the UK’s “abysmal” 5G speeds and availability as he urged regulators to approve the company’s merger with Vodafone.
Robert Finnegan noted his firm’s “cash flows have been negative since 2020 and our costs have almost doubled in five years, meaning investment in [the] network is unsustainable”.
“UK mobile networks rank an abysmal 22nd out of 25 in Europe on 5G speeds and availability, with the dysfunctional structure of the market denying us the ability to invest sustainably to fix this situation,” he added.
Business leaders expressed frustration with ministers on Monday amid a growing budget backlash that bosses said would trigger an “avalanche of costs” and leave them with no choice but to slash investment and increase prices.
Sky News has learnt that bosses of large retail and hospitality companies and trade associations told Jonathan Reynolds, the business secretary, that last week’s budget risked damaging consumer confidence and exacerbating challenges facing the UK economy.
Among the dozens of companies represented on the call are said to have been Burger King UK, Fuller Smith & Turner, Greene King, Kingfisher and the supermarket chain Morrisons.
Mr Reynolds is said to have acknowledged that Rachel Reeves‘s inaugural fiscal statement had “asked a lot” of British business, with James Murray, the financial secretary to the Treasury, understood to have described it as “a once-in-a-generation budget”, according to several people briefed on the call.
Jonathan Reynolds. Pic: PA
One insider said that Nick Mackenzie, the chief executive of Greene King, had highlighted that the increase in employers’ national insurance (NI) contributions would cause “a £20m shock” to the company, while Fullers is understood to have warned that it would be forced to halve annual investment from £60m to £30m as a result of increased cost pressures.
Rami Baitieh, the Morrisons chief executive, told Mr Reynolds that the budget had exacerbated “an avalanche of costs” for businesses next year, and asked what the government could do to mitigate them.
Sources added that the CBI, the employers’ group, said its impact would be “severe”, while the British Beer & Pub Association added that there was now a disincentive to invest and flagged “a tsunami” of higher costs.
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How will the budget affect businesses?
The range of comments on the call with ministers underlines the scale of discontent in the private sector about Labour’s first budget for nearly 15 years.
Only a small number of interventions during the discussion are said to have been in support of measures announced last week, with the Federation of Small Businesses understood to have praised the doubling of the employment allowance, which would see many of the smallest employers having their NI bills cut by £2,000.
The Department for Business and Trade has been contacted for comment, while none of the companies contacted by Sky News would comment.
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