David Milliken

LONDON, (Reuters) – British companies reported record-breaking cost pressures and the fastest increase in new orders since June. This was according to a carefully watched survey of British business. It could be a sign that the Bank of England will raise its interest rate in December.

On Tuesday, the IHS Markit/CIPS composite purchasing manager’s index (PMI) dropped to 57.7 from its October final reading of 57.1. However, this still showed strong growth and was a little higher than the average forecast of economists in a Reuters poll.

Chris Williamson (chief business economist, financial data provider IHS Markit) stated, “A combination that sustained buoyant business and further job market gains gives the green light to interest rates rising in December.”

Many investors felt that the Bank of England was wrongfooting them at the beginning of September. It kept rates at an alarming 0.1%, despite signalling an increase, because it needed to take longer to evaluate the termination of government’s furlough job support program on Oct. 1.

The data shows that in October consumer price inflation hit an all-time high of 4.2%, a 10 year high. Businesses continued to hire hard and the number of vacant jobs rose to an all-time high.

IHS Markit reported that the flash PMI, which is preliminary, showed net hiring dropping to its lowest level since April. But, this could not be attributed to a lack of job opportunities.

The composite index saw input prices rise faster than ever since its inception in January 1998 due to rising wages, increased energy costs and other cost pressures.

In addition, records were set by longer-running PMIs that are separate for manufacturing and services sectors.

Some services companies claimed clients were resisting the price rises, so prices rose at a slower rate than October’s peak.

Due to lower COVID-19 restriction, orders rose. While coronavirus restrictions have been removed in England since July, the most recent relaxation of travel restrictions has boosted services exports.

According to the BoE, inflation is expected to reach 5% in 2019. Huw Pill, its chief economist, stated on Friday that it would need patience while returning towards its 2% goal.

The direct effects of an increase in energy prices or global supply-chain disruptions will be felt even if interest rates are raised. The BoE hopes that they will decrease the likelihood of higher wages and prices, which could lead to higher inflation becoming more permanent.