Signs of inflation emerge in service sector as rate-setting meeting starts
Thursday 04 November 1999
Costs - mainly wages - faced by services companies rose at their fastest rate since May 1997, according to the October purchasing managers' survey. Many businesses were unable to absorb the higher costs, resulting in the first increase in prices charged for four months. At the same time, the survey showed the pace of expansion in services slowed compared with the previous month, although it remained healthy.
These latest figures will deepen concerns in both the Bank of England and the Treasury over pay pressures. Recent official figures showed average earnings growth has passed the 4.5 per cent threshold the Bank has said is consistent with meeting the inflation target. Earlier this week the Chancellor, Gordon Brown, repeated his warning that excessive pay rises would threaten economic stability.
According to the purchasing managers' survey, the overall activity index slipped to 55.7 from 57.1 in September. But the cost index jumped from 54.1 to 59.2 while the prices charged index rose to 51.7, indicating prices have started to rise after spending the previous four months bobbing along below the 50 level.
"The survey produced the worst possible mix of weaker activity and orders' growth, combined with a sharp pick-up in costs and prices," said John O'Sullivan, an economist at Greenwich NatWest.
The report noted that the availability of both permanent and temporary staff fell for the fourth month running. Skills shortages were most serious not only for computing staff but also secretarial staff, and appeared to be getting worse.
Competition has so far limited the rise in prices charged by services firms, but many had to pass on increases last month. "The most commonly cited reason was that cost pressures, particularly those relating to wages and salaries, had become too great to leave charges unchanged," the report said.
Although City analysts believe some members of the MPC might stick to their well-publicised views that other pressures, such as the strong pound, are bearing down on inflation, the great majority think the evidence pointing to a rate rise today is overwhelming.
David Owen at Dresdner Kleinwort Benson said: "Many people are too gloomy about the long-run inflation prospects, but an interest-rate rise this week is very likely."
On top of the signs of cost and price increases in business surveys, house prices leapt 2.8 per cent last month according to Halifax. Output growth has also picked up significantly, with manufacturing as well as services expanding comfortably.
This week's MPC meeting is the first since independent members of the committee complained to the Bank's Court of Directors about their lack of research support. The Court is expected to agree to allocate additional resources to economic analysis so the four external members can get more back-up in future.
- 1 I've been called an abusive and dangerous parent, when all I did was listen to my transgender child
- 2 Why this father didn’t hide his daughter’s heroin overdose in her obituary
- 3 Smartphones are making children borderline autistic, says psychiatrist
- 4 Company breaks open Apple Watch to discover what it says is 'planned obsolescence'
- 5 Teaching profession headed for crisis as numbers continue to drop and working lives become 'unbearable'
Nepal earthquake in pictures: Photos show devastation caused by 7.8 magnitude earthquake
Nepal earthquake: More than 1,100 killed across four countries and in Mount Everest avalanche
Royal baby: Live updates as superbug closes ward at St Mary's Hospital where Duchess of Cambridge is due to give birth
Hermann Goering's daughter fails to reclaim items looted by Nazi deputy during WWII
Teaching profession headed for crisis as numbers continue to drop and working lives become 'unbearable'
The sickening truth about food banks that the Tories don't want you to know
General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband
Migrant boat disaster: Ukip candidate mocks victims in sickening Twitter post
Nigel Farage wants the BBC to stop making programmes like Doctor Who, Strictly Come Dancing, and Top Gear
Global warming: Scientists say temperatures could rise by 6C by 2100 and call for action ahead of UN meeting in Paris
Rupert Murdoch berated Sun journalists for not doing enough to attack Ed Miliband and stop him winning the general election
iJobs Money & Business
£24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...
£50000 - £55000 per annum: Ashdown Group: Business Analyst - Financial Service...
£18000 - £23000 per annum + OTE £45K: SThree: At SThree, we like to be differe...
£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is the o...