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UK inflation levels are likely to remain elevated for at least another year according to a new survey of UK companies that shows cost pressures are expected to increase further in the next six to twelve months.
According to Lloyds Bank's 'Business Barometer – Special Questions Series', supply chain issues, surging commodity prices and a shortage of workers were making it difficult for firms to meet demand.
77% of all UK businesses surveyed said that they have recently experienced significant upward cost pressures.
Cost pressures related to surging commodity prices were experienced by 63% of businesses and supply chain bottleneck were cited by 53% of businesses.
Staffing issues were the third most significant driver of cost pressures, cited by 46% of all firms.
30% of firms have reported a lack of applicants to fill roles, suggesting the ending of the government's furlough scheme would almost certainly not result in a surge in unemployment.
If anything, the survey suggests the amount of spare capacity in the economy is particularly limited, meaning the prospect of wage-inspired inflation in the future is something the Bank of England can anticipate.
Notably, "significant labour-related costs were more evenly distributed across sectors," said Lloyds Bank.
The findings come as a November interest rate rise at the Bank of England are now fully priced by the market.
Policy makers - most notably Governor Andrew Bailey - have expressed concerns that the inflationary pressures caused by supply chain bottlenecks and commodity prices will spark inflationary pressures elsewhere.
But remove the supply-side constraints and the economy is still left with a noticeably shallower pool of excess labour to draw from.
This would under most circumstances be a condition for higher interest rates at a central bank.
The report reflects that staff shortages "might seem puzzling, given that unemployment and inactivity levels are still above their pre-pandemic levels."
In explanation they say it may point to substantial 'mismatches' within the labour force.
Indeed, the experience of other developed nations suggests a significant amount of older workers left the labour force during the pandemic and are not likely to return.
The UK's labour shortages are exacerbated by the ending of free movement with the EU.
A lack of people with the right skills or experience was the most often reason cited reason for an inability to recruit. It was mentioned by 39% of all firms.
30% noted a lack of applicants, an indication of a more general worker shortage says Lloyds Bank.
Costs are expected to remain high over the coming year with 60% of all firms saying they expect commodity or raw material prices to increase in the coming period.
39% overall envisage higher staffing-related costs and 16% see lower labour costs.