* UK business surveys show record cost increases and
deepening manufacturing pessimism
* Money markets now see 75% chance of BoE rate hike by
June
* ONS reports UK budget deficit at six-year low, but
March borrowing exceeded forecasts
LONDON, April 23 (Reuters) – The pound eased against the
dollar on Thursday, largely as a result of the U.S. currency
drawing in safe-haven flows, as investors remained nervous over
a fragile ceasefire in the Middle East, but also on the back of
more evidence of the pain coming for the UK economy from rising
energy costs.
A survey of UK business activity showed companies reported a
record jump in costs in April, while a separate survey of
confidence in the manufacturing sector showed deep pessimism and
the steepest rise in costs since records began for that report
in 1975.
Money markets also shifted to show traders now see a 75%
chance of a rate hike from the Bank of England by June, compared
with a 50/50 chance at the start of the week.
Sterling, which has returned to where it was in late
February, was a touch lower on the day at $1.349, set for a
0.17% decline for the week. It strengthened against the euro,
which dipped 0.14% to 86.59 pence.
The share of British companies reporting rising costs surged
by a record amount this month, a clear warning of higher
inflation ahead as fallout from the Iran war spreads through the
economy, a survey showed on Thursday.
Data company S&P Global said its gauge of input prices in
this month’s Flash UK Composite Purchasing Managers’ Index
showed the biggest increase on the month since records began 28
years ago, hitting its highest level since a bout of
double-digit inflation in late 2022. Overall business activity,
however improved by more than any economist polled by Reuters
had expected, according to the survey.
A separate report from the Confederation of British Industry
on Thursday showed domestic manufacturers have turned their most
pessimistic since the start of the COVID-19 pandemic. The
survey’s gauge of expected prices jumped to +32 from +12 in
March, representing the biggest month-to-month increase since
records began in 1975.
“To be sure, the outlook remains murky. While we remain
sanguine about the prospect of second-round effects, indirect
effects remain worrying. Higher energy prices aren’t the only
thing consumers will have to worry about. Food prices are likely
to rise. Higher shipping costs could also push up core goods
prices,” Deutsche Bank UK economist Sanjay Raja said.
Raja added that, for now, this would do little to push the
BoE into any decisions on rate rises.
Britain’s budget deficit for the last financial year
narrowed to a six-year low as a percentage of economic output
although borrowing for March alone exceeded forecasts, according
to the Office for National Statistics on Thursday.
