More proof Gordon Brown is lying about the cause of inflation

He says it’s public sector pay that should be cut to tackle inflation.

Ah, an incomes policy. How quaint.


But what about prices?

Well, the Financial Times tells us that…

More businesses plan to raise prices than at any point in the last 10 years, a survey showed on Thursday, illustrating the difficulties the Bank of England faces in balancing slowing growth with inflationary pressures.

The British Chambers of Commerce said in its quarterly economic survey that the balance of companies planning to raise prices rose to 41 per cent in the last quarter of 2007, reaching the highest level in the survey’s history in both the manufacturing and the service sector.

Companies appeared determined to pass on higher costs even though the pace of increases in pay, raw material costs and other overheads had slowed, and the outlook for activity became more gloomy.

“This survey underlines the somewhat uncomfortable position the Bank of England finds itself in,” said Richard McGuire, strategist at RBC Capital Markets.

Domestic sales growth slowed, manufacturing exports worsened markedly, fewer companies said they were planning investments and there was a sharp fall in service sector companies’ confidence in future profitability.

However, Paul Dales at Capital Economics said the survey’s readings for domestic sales of manufacturing and service companies in the fourth quarter were still consistent with annual GDP growth close to the previous quarter’s 3.3 per cent.

A sharp drop in export orders suggests manufacturers are suffering from the weaker global economic outlook. They should soon receive a boost from the weaker pound, but David Kern, economic adviser at the BCC, said they could opt to increase margins rather than raise production.

The main uncertainty is the extent to which higher prices in the corporate sector will feed through to consumers. Mr Kern said hard-pressed retailers would be unable to raise prices on the high street. However, the survey follows official data showing consumer price inflation remains above the Bank’s 2 per cent target.

Ross Walker, economist at the Royal Bank of Scotland, said that while interest rates were likely to fall, futures markets had now priced in a bigger easing than was justified by the data. Since the Bank of England presents its forecasts for inflation in the context of market expectations of interest rates, that could make it even more difficult for the monetary policy committee to communicate its thinking, he said.


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