U.K. Manufacturers Predict Price Increases in 2011, EEF Says

The proportion of U.K. engineering manufacturers predicting price increases in the next quarter reached the highest level in more than two years, the Engineering Employers Federation said.

The number of companies saying they plan to raise domestic prices exceeded those expecting declines by 16 percentage points, the EEF and accountancy firm BDO Stoy Hayward LLP said in a quarterly survey released today in London. That’s the highest level since the third quarter of 2008 and compares with a reading of 5 points in September.

The Bank of England’s Monetary Policy Committee will probably keep its stimulus plan at 200 billion pounds ($314 billion) this week as officials stay divided on whether the economy faces a greater risk from slowing growth or consumer prices. Governor Mervyn King has said that policy makers stand ready to change policy in either direction.

“It does raise questions about whether there is the degree of spare capacity that some of the MPC members think there is which will eventually bring inflation down” to the 2 percent target, EEF Chief Economist Lee Hopley told journalists at a Dec. 3 briefing, referring to the gain in price expectations. “This could suggest it’s less likely we’re moving back as fast towards target after 2011 than the bank thinks.”

A gauge of export-price expectations for the first quarter also climbed to 12 from 5 in the EEF’s last survey in September. The survey focused on companies making items from metals to mechanical equipment, cars and electronics.

Commodity Prices

“What we’ve seen in the past couple of quarters is price increases in metals and sectors like chemicals and rubber and plastics, which is obviously commodity-price driven. That’s now spreading more widely,” Hopley said. “That is something we could well see pick up through 2011.”

In a broader sample of manufacturers, the proportion saying sales will rise in the three months through March exceeded those reporting declines by 12 percentage points, compared with 33 points in the last survey, the EEF said in the report. The group surveyed 519 companies from Nov. 3 to Nov. 24.

The Bank of England will have to increase its asset- purchase plan by the middle of 2011 because of the risks of a “setback” to economic growth, the British Chambers of Commerce said in forecasts released yesterday. The bank will hold its next meeting on Dec. 9.

To contact the reporter on this story: Scott Hamilton in London at shamilton8@bloomberg.net

To contact the editor responsible for this story: John Fraher at jfraher@bloomberg.net

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