Commenting on the producer price figures for February 2011, published today by the Office of National Statistics (ONS), David Kern, Chief Economist at the British Chambers of Commerce, said:
“These figures are once again higher than expected and they support our assessment that annual consumer price inflation will increase towards 4.5% over the next few months. This will create an uncomfortable background for the MPC and make it more likely that interest rates will be raised before long, most likely in May. While there is virtually nothing the MPC can do in the short-term to prevent a temporary rise in inflation, there is a strong likelihood it will take action to re-establish its credibility.
“There have been strong increases in the cost of materials and fuels purchased by businesses and this will intensify pressures on cashflows and on profit margins. While we are hopeful that UK businesses will prove sufficiently robust to deal with this situation without experiencing a major setback, the immediate risks cannot be shrugged off. “At a time when the Government must continue to implement its tough deficit-cutting programme, it is important that the Budget is used to remove regulatory burdens facing businesses, particularly for small and medium-sized firms, and to launch more effective growth-enhancing policies.”