RISING PRICES � RISING COSTS

UK inflation has been following an upward course over the past year, and suddenly we find ourselves in a position where costs are rising far in excess of the Government�s targets.  January�s figures revealed that Consumer Prices Index (CPI) inflation was rising at 3.0% - its highest level for 11 years � whilst Retail Prices Index (RPI) inflation, which includes mortgage payments, was rising at 4.4% - its highest level for 16 years.

The response from the Bank of England has been three interest rate rises since August 2006, raising rates from 4.5% to 5.25%.  Scottish Chambers of Commerce�s latest Quarterly Business Survey, measuring data from our members for the final quarter of 2006, shows that the rising cost of living is already beginning to result in upward pressure on wage settlements and is fuelling concerns over the cost of borrowing.  In turn, these cost pressures are causing many firms across various sectors to consider price rises over the next quarter, with a cyclical effect feeding back into inflation.

Whilst business confidence remains high, it is important that this potential inflationary cycle is broken sooner rather than later, and this explains why the Bank of England took the unexpected step of putting up interest rates in January.  At a recent meeting between Scottish Chambers and the Chief Secretary to the Treasury, the Minister expressed his confidence that CPI inflation would return to the Government�s 2% by the end of the year.  With businesses already feeling the pressure of rising costs, we must hope that he is right.

Garry Clark
Policy & Campaigns Executive
Scottish Chambers of Commerce
What�s your view? Email Garry at [email protected]

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