By William Schomberg
LONDON (Reuters) – Inflation pressures faced by British firms hit record levels this month, and growth in the private sector cooled only slightly from an all-time high in May when coronavirus restrictions were lifted, a survey showed on Wednesday.
The preliminary reading of the IHS Markit/CIPS UK Composite Purchasing Managers’ Index (PMI) pointed to one of the strongest monthly improvements in business activity since 1998 with a reading of 61.7, not far off May’s unprecedented 62.9.
Input costs matched a previous record increase from June 2008 and inflation of prices charged by firms hit its highest since these records began in 1999, as disruption to supply chains caused a scramble for components.
That could mean inflation has a lot further to rise after breaking above the Bank of England’s 2% target last month, said Chris Williamson, chief business economist at IHS Markit, which compiles the survey.
The BoE is not expected to change monetary policy when it announces the outcome of its June policy meeting on Thursday but investors are waiting to hear whether it is sticking to its view that the rise in inflation is likely to prove transient.
“Businesses are reporting an ongoing surge in demand in June as the economy reopens, led by the hospitality sector,” Williamson said.
But there were signs that the rebound might be slowing as new orders cooled.
Prime Minister Boris Johnson allowed bars, restaurants and other hospitality firms in England to resume indoor service in mid-May. But last week he delayed the removal of the last social-distancing rules after COVID-19 cases rose again.
The PMI survey showed hiring also rose by a record amount in June but many firms were still unable to operate at full capacity because of staff shortages, and the lack of candidates was pushing up wages.
Williamson said that could add to worries that the recent spike in inflation would last longer than the BoE has suggested.
The PMI for the services sector dipped to 61.7 in June from 62.9 in May. The index for the smaller manufacturing sector fell to 64.2 from 65.6.
Sentiment about the economic outlook, while still positive, fell to its lowest in five months.
(Writing by William Schomberg; Editing by Catherine Evans)
