UK economic activity remained strong in November despite supply shortages and rising price pressures, according to close business surveys that will strengthen the case for the Bank of England to raise interest rates in December.
The data was published on Tuesday shortly before Jonathan Haskel, one of the more dull members of the central bank’s Monetary Policy Committee, said that “the prospective rise in Bank Rate from its emergency level”, whenever it comes, would be part of the transition . back to a normal economy, reflecting the success of policies “to deal with the worst economic shock in 100 years”.
Although some MPC members – including Huw Pill, the BoE’s chief economist – gave strong tips that they could swing at the committee’s next meeting in favor of higher rates, Haskel did not say whether he was ready to change his own voice.
Speaking at an online event, he took a strikingly more false line than in previous speeches, saying that current wage pressures would have to be matched by increased productivity to be sustainable without fueling inflation, and that policymakers should be “vigilant” be”.
But he also said there was a case of waiting longer to tighten policy “once we have more confidence that the recovery is entrenched”, given ongoing concerns about the pandemic and about higher energy prices that could potentially hurt consumer confidence, leading to to growth to a halt.
However, there was little sign of higher costs that activity in the flash PMI index published by IHS Markit and the Chartered Institute of Procurement and Supply published on Tuesday.
It showed that nearly two-thirds of private sector companies reported rising costs in November, indicating the steepest rate of input price inflation in more than twenty years of records. IHS Markit said the increase was driven by higher wages and bills for fuel, energy and raw materials.
Yet the composite reading for output across the services and manufacturing sectors was 57.7, essentially unchanged from October’s reading of 57.8, indicating a healthy pace of expansion – with a marked increase in manufacturing despite disruption in supply chains.
“A combination of sustained vibrant business growth, further gains in the labor market and record inflationary pressures gives a green light for interest rates to rise in December,” said Chris Williamson, chief business officer at IHS Markit, adding that the data suggests “a welcome”. picks up in GDP growth after the slowdown seen in the third quarter ”.
Businesses continued to report a sharp rise in customer demand, with new orders pouring in particularly quickly in the service sector following the rollback of pandemic restrictions, Markit said. Companies have also continued to hire, limited only by a lack of candidates or by staff leaving unexpectedly for a lifestyle change or for higher wages elsewhere.
Manufacturers in particular were still able to pass on cost increases to their customers, with the highest percentage on record saying they had increased sales prices – although some service providers said their customers were now beginning to resist higher prices.
Economists said the data could reassure MPC members who were reluctant to raise interest rates in November because they were worried about halting the recovery.
“Increasing. . . “The slowdown in growth in July and August seems to have been a ‘soft spot’ rather than a more sustained slowdown,” said Cathal Kennedy, an economist at RBC Capital Markets.
Investec economist Ellie Henderson said: “A steady economic recovery, balanced against both a relatively tight labor market and rising price pressures, will put even more pressure on the MPC to raise rates.”