Warning over failures if firms do not raise prices
BUSINESS campaigners have warned over business failures and job losses if companies follow the Bank of England chief’s suggestion not to raise prices above inflation.
Governor Andrew Bailey asked retailers to think twice before setting prices above the rate of inflation because it risks embedding higher prices into the economy.
In an interview with BBC Radio 4 yesterday, Mr Bailey said higher inflation “hurts people and it particularly hurts the least well-off in society”.
He asked retailers that set prices to bear in mind that inflation is set to drop sharply this year.
He said: “I would say to people who are setting prices – please understand if we get inflation embedded, interest rates will have to go up further and higher inflation really benefits nobody.”
But Mr Bailey insisted he was not saying that companies should take hits to their profits or that some firms are putting up prices more than is necessary.
He said that companies have to set prices based on the costs they face, which have been rising rapidly over
the last year.
But he added that, when looking to set future prices, companies should “please bear in mind” that these cost rises are expected to slow considerably by the end of the year.
Mr Bailey said higher inflation “really benefits nobody”, adding: “It hurts people and it particularly hurts the least well-off in society.”
Business groups stressed that retailers, particularly in the hospitality sector, have had no choice but to “reluctantly” raise prices to offset cost pressures.
Kate Nicholls, chief executive of UKHospitality, which represents more than 750 companies with around 100,000 venues, said she supports the objective of reducing inflation, which is in everyone’s best interests.
But she added: “To suggest that the sector should stomach these staggering cost increases ignores the real and stark situation facing venues across the country.
“It is simply impossible if we want to have a viable hospitality sector left in a year’s time.
“No business wants to raise its prices, for fear of losing sales. We all want prices to be as low as possible for consumers, and it is a minor miracle that many have held off increases for as long as they have.
“The reality is that without adequate government support, whether it is through energy, business rates or VAT, doing as the governor asks will just mean business failure and job losses, compounding the country’s economic woes.”
The remarks come after UK Consumer Prices Index (CPI) inflation unexpectedly jumped in February, to 10.4% from 10.1% in January, driven by decades-high food prices.
Dairy products are among the food items that have shot up in price, with low-fat milk surging by 42% in the year to February, cheese by 35%, and eggs by 32.5%.
There were other factors behind the leap in CPI, with the Office for National Statistics noting the rocketing cost of alcoholic drinks in pubs and restaurants after discounts in January.
The Bank’s Monetary Policy Committee voted to increase interest rates to 4.25% from 4% on Thursday, as it tries to put a lid on inflation.
Mr Bailey said that he thinks that the risk of a recession has receded in recent weeks after the Bank upgraded its forecast for the second quarter of the year.
It now expects gross domestic product (GDP) to rise slightly in the April-to-June period, up from a previous forecast that it would drop 0.4% in those months.
“I think if you look at it in the context of a risk, then the risk has gone down quite a lot,” he said.
“Now, you can’t rule out a risk, risks don’t work like that. But what I would say very clearly is that the prospects for the economy in terms of growth are now better, considerably better. And I think it is reasonable to say that there’s a pretty strong likelihood that we will avoid a recession this year. But we’ve still got to put in place the conditions for much stronger growth in the economy.”
Downing Street yesterday said it is for individual companies to make their own pricing decisions.