UK consumer price inflation is seen rising at a faster pace over 2016 than the Bank of England's February forecast suggested, according to the latest reports.
London - Tentative upward price pressures stemming from the recent deprecation of the British pound can already be felt among UK manufacturers, as the factories' margins begin to squeeze notably on the back of higher input costs.
According to the most recent survey by the Confederation of British Industries (CBI), average input costs increased the most in two years in April, with the companies so far finding it "difficult to pass on increased costs" onto their consumers.
The CBI economics team told the WBP Online on Tuesday that manufacturers expect to charge their domestic clients more money to ease the margin squeeze, which could in theory translate into higher inflationary pressures in the coming months or quarters.
"With regards to increasing factory gate prices, there was a rise in expectations for what they would charge domestically but not for overseas clients which indicates that we could see some inflationary pressure over the coming quarter," the CBI said.
At the same time, the CBI warned that those expectations may not necessarily "match the actual outturn and so it remains to be seen whether or not we will see any notable price increases to ease the pressures on margin, particularly given the rather competitive environment."
Higher inflation to increase pressure on BoE
Significantly weak consumer price inflation remains among the fundamental reasons why the Bank of England (BoE) has been keeping rates at record lows, despite economic growth and the labor market growing robustly in recent quarters.
Regardless of some upside moves in the last two weeks, sterling's broader weakness against major currency peers this year has meant that the value of imports to the UK has been rising, thus translating into higher domestic costs pressures.
The BoE policymakers judged at the April MPC meeting that inflation should continue to tick up throughout this year on the back of a pickup in oil prices and the depreciation of sterling.
Evidence from the Markit/CIPS survey of a robust services sector showed a significant increase in inflationary pressures, as average input prices rose at the fastest pace since September 2014.
Markit's latest survey on the UK households' financial morale showed inflation expectations accelerated in April, as the seasonally adjusted index measuring the current perception of inflation rose to a 16-month high of 66.8. The index measuring living costs expectations in the year ahead also picked up to the highest level in eight months.
On the top of the above, Michael Saunders, Citi's economist replacing Martin Weale at the BoE's rate-setting committee in August, told Reuters recently that their latest forecasts suggested UK "CPI to rise significantly more sharply . . . than MPC's February [Inflation Report forecast] base case." The BoE's median estimate of 2016 Q4 CPI stood at 0.8% in the February forecast.
An updated view on the outlook for inflation and economic growth in the UK will be released along the BoE's quarterly Inflation Report forecasts due on May 12.
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