UK firms expect pay rises in record numbers on inflation

Bloomberg

A record number of UK companies expect to increase wages as the war in Ukraine deepens the cost of living crisis, a survey showed.
The Lloyds Bank Business Barometer found that a half intended to boost average pay by at least 2% in the next 12 months. A fifth of businesses that have annual turnover of more than 100 million pounds ($131 million) predicted they’ll increase pay by more than 5%.
In response, more than half of 1,200 UK firms polled said they’re likely to lift prices.
The report will fan Bank of England concerns about the so-called second-round effects on inflation. That’s where higher prices fuel demands for higher pay, which then force firms to increase prices even more to protect profit margins. Governor Andrew Bailey controversially called on employees to exercise restraint in wage bargaining to prevent a wage-price spiral.
The report also showed that hiring demand remains strong, with almost half of firms expecting to take on staff in the next 12 months as the economy recovers from the coronavirus
pandemic. That underscores
the tightness of the labour market, which is exacerbating
inflationary pressures.
Geopolitical and economic uncertainty dragged down business confidence in March, by the most since the first two months of the pandemic, according to the survey, which was carried out in the first two weeks of March. Manufacturing and retail firms were hit hardest, though across sectors confidence remained above the long-term average.
“March’s data show UK businesses are facing significant challenges from the impact of Russia’s invasion of Ukraine in increasing economic uncertainty and ongoing inflationary pressures,” said Hann-Ju Ho, senior economist at Lloyds. “Following encouraging improvements at the start of the year, March’s fall in confidence is therefore disappointing, but not surprising.”
Meanwhile, the UK economy grew stronger than expected at the end of last year, displaying resilience as the omicron variant of the coronavirus spread.
Gross domestic product expanded 1.3% in the fourth quarter, the Office for National Statistics said. That’s more than the 1% figure previously reported.
Service industries expanded more quickly than the ONS had previously estimated, and exports also enjoyed a bigger jump.
The figures also showed the collapse in the economy at the height of the pandemic was not quite as bad as previously thought.
In 2020, GDP shrank 9.3% rather than the 9.4% previously estimated.
The rebound in 2021 was correspondingly shallower, with growth of 7.4%, down from the earlier estimate of 7.5%. That’s still the largest increase in GDP in a single year since World War II.
At the end of 2021, the economy was just 0.1% below its pre-pandemic peak. The shortfall was previously thought to have been 0.4% and puts Britain in the middle of the Group of Seven nations for economic performance.
The ONS said there was a marked increase in output for human health and social work activities, reflecting what the National Health Service was doing to fight Covid. It also recorded stronger activity by employment agencies after the government’s furlough benefit for workers ended in September.
There also was a surge in retail activity with consumers returning to shops at the end of the year. Hospitality suffered with people staying away from restaurants especially at the end of the quarter after the omicron variant emerged, the ONS said.
Separate figures showed the current-account deficit, the gap between money coming into the UK and money leaving, narrowed sharply to 7.3 billion pounds in the fourth quarter, equal to 1.2% of GDP. That was the lowest since the end of 2019.
The trade deficit shrank sharply as exports rebounded following a third-quarter slump.
The UK also recorded a 4.7 billion pound surplus on investment income, the first surplus since 2011. That reflects higher returns from investments that UK firms made abroad than their foreign counterparts made in Britain.