Consumers face price hikes as import costs hit industry

MANUFACTURERS are preparing to make their biggest price hikes in 22 years, spelling further misery for cash-strapped households, a survey yesterday warned.

The latest research from the CBI added to an uncertain economic picture as forecasters continued to spell the death of the euro and monetary policy committee member Paul Fisher raised the spectre of more quantitative easing (QE) in the UK.

Large manufacturers told the CBI they were planning their greatest assault on prices since January 1989 as they come under pressure from high commodity prices and other import costs.

A balance of 27 per cent of manufacturing firms surveyed by the business lobby group said they will be forced to raise output prices over the next three months - an increase on last month's 24 per cent and well above the long-term average of 1 per cent.

Ian McCafferty, CBI chief economic adviser, said inflationary pressures "remain acute".

"High commodity prices and import costs mean firms still expect to raise factory gate prices markedly over the next three months," he said.

Although the survey revealed healthy demand for British-manufactured goods, it added to an increasingly uncertain picture on the UK's economic prospects.

Markets rallied ahead of last night's crucial vote of confidence in the Greek parliament but economists continued to caution that the eurozone's problems are far from over. The Centre for Economics and Business Research has gone so far as to predict the euro will be consigned to the history books by 2013.

In a bleak speech to a conference in London yesterday, MPC member Fisher stressed that Britain's recovery remains fragile. While, in the short term, inflation is squeezing households, he said low growth and deflation could be the greater threat in the medium term and the Bank of England may be forced to print more money to avoid a "deflationary rut".

He signalled that further QE is "still very much on the table as one of our (the MPC's] potential policy actions, and it's certainly not ruled out and people need to be aware of that".

Fisher added: "On one side, higher inflation expectations could become entrenched making it very costly for the MPC to subsequently bring inflation back to target. On the other side, the economy could be much weaker than we expect pushing down on inflation and risking deflation. Recovering to the target from that could be even harder (in my view]"

Adam Posen is the only MPC member to have voted in favour of QE while three members of the nine-strong committee have pushed for an interest rate hike.

Minutes of the Bank's June meeting are published today, giving the first flavour of how new member Ben Broadbent, who replaced arch hawk Andrew Sentance, views the economy.There is an expectation in the Square Mile that the 6-3 majority in favour of keeping rates at their historic low of 0.5 per cent will have increased to 7-2 at the June meeting.

The government's timetable for reducing the budget deficit was also called into question yesterday when figures showed that borrowing in the first two months of the fiscal year was 1.5 million higher than last year despite a dip last month.