A stark rise in production costs for UK businesses in January could lead to a suppression of profit margins if businesses don’t up their costs, leading to concern that the inflation could rise further over the coming months.
The costs of production for UK manufacturing businesses has risen by some 13.4% on the year to January, prompting fears that prices may be readjusted to account for the increased costs of production.
Rising fuel costs and other raw materials were said to account for the majority of the price growth, causing a rise in costs far in excess of the 12.6% analysts had previously forecast.
The news has been met with concern by industry analysts, most notably over the potential for a further knock-on impact on inflation – a particularly unwelcome suggestion in the current market climate.
With consumer price inflation for January set to be released over the next week, and the initial impact of the 2.5% VAT increase still to factor into results, some commentators including Alan Clarke at BNP Paribas have warned of potentially poor figures, and the likely knock-on pressure this will apply to the Bank of England to raise interest rates.
Interest rates have been on hold at 0.5% for almost 2 years, with calls for an increase becoming increasingly more vocal in recent months as inflation continues to rise.