UK services industry sees record cost inflation - CBI

BY Reuters | ECONOMIC | 11/29/21 07:07 PM EST

LONDON (Reuters) - Costs are rising at the fastest rate in over 20 years for firms in Britain's services sector, according to a business survey released on Tuesday which shows why the Bank of England may soon raise interest rates.

The Confederation of British Industry said its quarterly survey of the services sector showed the quickest growth in costs for both business and consumer services companies since the survey began in 1998.

Separate data from Lloyds Bank showed a record 50% of businesses plan to raise prices and a quarter of them expect to raise pay by 3% or more over the next 12 months.

"Record growth in costs is threatening to put a winter freeze on the service sector recovery next quarter," CBI economist Charlotte Dendy said.

Both surveys took place in the first half of November, before news of the Omicron variant of COVID-19 dented the confidence of financial market investors who now see a roughly 60% chance that the BoE will raise rates in December.

British consumer price inflation hit a 10-year high of 4.2% in October and the BoE expects it to reach nearly 5% next year.

In the short run, higher interest rates will not reduce pressure from a global surge in energy prices and supply chain difficulties. But they may reduce knock-on effects that would come if companies increase prices, and workers ask for higher pay, in anticipation of permanently higher inflation.

Tuesday's CBI data showed businesses already think they will be unable to pass on higher costs in full. Although average selling prices are expected to rise by a record amount, profit growth is expected to stall over the coming three months for services firms, due to the rise in costs.

The CBI reported the fastest hiring since 2015 by business and professional services companies.

Data from recruitment website Indeed, also released on Tuesday, showed vets, optometrists, auditors, animators and truck technicians were the roles that their customers were finding it hardest to fill.

(Reporting by David Milliken; Editing by William Schomberg)

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.