Optimism among businesses in Britain's services sector is now higher than at any time since June's vote to leave the European Union, despite the prospect of rising costs and prices eroding profits, a major business survey showed on Monday. The Confederation of British Industry said optimism about the outlook among business and professional services firms was the highest since November 2015, while consumer services firms' optimism was close to levels last seen in May.
However, both types of business expect to raise prices at the fastest rate in about 10 years over the next three months, as they passed on almost all of the large rise in costs triggered by sterling's slide since the Brexit vote. "Firms anticipate increasing pressure on margins over the next quarter, with the strongest expectations for price growth in 10 years, making the business environment that bit tougher," CBI chief economist Rain Newton-Smith said.
The Bank of England forecasts sterling's fall will cause consumer price inflation to rise to around 2.7 percent by the end of this year from 1.8 percent in January, while economic growth holds broadly steady at 2 percent. This growth rate is at the top end of economists' forecasts, and the central bank expects consumer spending to come under increasing pressure as inflation rises over the year.
For now, it is consumer-facing firms that are doing best, according to the CBI. In the three months to February, the proportion reporting rising business volumes was the highest since August 2015 - though they are preparing for tougher times by planning to hire the fewest staff since then too. Firms servicing businesses reported flat demand, but both consumer and business-to-business companies expect to increase investment as normal, contrasting with BoE forecasts of a fall. Official data last week showed slowing momentum in the services sector at the end of 2016, with year-on-year growth dropping to a six-month low of 2.8 percent in December from November's 3.2 percent.
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