Lloyds Bank has sounded the alarm for consumers, stating businesses could have “no choice” but to hike prices. The latest Lloyds Bank UK Sector Tracker shows that despite a resilient performance across UK sectors in April, cost pressures are mounting throughout the economy.
In April, the Tracker observed output growth in eight of the 14 monitored UK sectors, down from nine in March but still above the average of seven seen in 2023. Leading the charge with the quickest output expansion were financial services, including banks, insurers, and investment firms, closely followed by software services and commercial and professional services.
Stronger customer demand, evidenced by an influx of new orders, bolstered output growth in these sectors. Drawing on historical data from the Tracker, Lloyds Bank suggests that the April figures indicate the potential for UK GDP to either maintain its level or expand in Q2.
READ MORE: If you have these symptoms then ‘do not go to work’
This optimistic outlook comes even as all 14 sectors witnessed rising costs in April, marking the first universal cost increase since December 2022. Manufacturers pointed to higher staff costs as a key factor driving the surge in expenses during April.
The tourism and recreation sector, encompassing pubs, bars, and restaurants, faced the most severe input cost inflation. Despite the pervasive rise in costs, 13 of the 14 sectors tracked responded by raising their prices.
Food and drink manufacturing was the only sector to reduce prices in April, although it was at a slower pace than the month before. As the cost of living crisis continues, and inflation remains above its two per cent target, consumers have seen prices rise across their day-to-day spending.
Nikesh Sawjani, Senior UK Economist, Lloyds Bank, said: “As well as highlighting resilience, this month’s data suggests that the economy entered Q2 on a solid footing. Past UKST data shows that since the pandemic, when more than half of sectors have begun the quarter in growth mode as it has here GDP has held or grown.”
“That being said, the cost and price trends we’ve uncovered here will be something closely watched by the Bank of England as it considers its next steps with interest rates. Sustained cost pressure could mean more businesses have no choice but to raise prices, which could have a bearing on the overall inflation outlook.
“That being said, the cost and price trends we’ve uncovered here will be something closely watched by the Bank of England as it considers its next steps with interest rates. Sustained cost pressure could mean more businesses have no choice but to raise prices, which could have a bearing on the overall inflation outlook.”
Scott Barton, managing director of Lloyds Bank Corporate and Institutional Banking commented: “It’s a testament to firms’ strength and flexibility that so many sectors are still achieving growth in what remain challenging conditions, particularly when it comes to costs.”
“As we look to the months ahead, management teams will need to keep a laser focus on factors like supply chain performance, inventory, pricing strategy and working capital to ensure that they’re in the best position to weather headwinds, and capitalise on new opportunities.”
