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How long can businesses absorb factory price rises?

The news this week that factory price inflation increased to 5% in March is something which the UK government and the Bank of England are becoming more and more concerned about. Despite the difficult economic climate it seems that many businesses are willing to absorb short-term factory price rises at the expense of their profit margins in the hope that commodity prices, which have fed the increase in factory prices, will start to settle down. But how long can businesses continue to absorb pricing pressure?

There is no doubt that pricing pressure will in the end see an increase in goods on the high street and services across the UK. The problem for many companies is the fact that they have already experienced one of the worst economic downturns in living history and their balance sheets are fragile to say the least. There are very few operations which will be able to absorb pricing pressure for anything but a short period without putting the future of the company in doubt.

If we start to see inflation pushing through to the high street then we could see UK base rates rise quicker than many had expected which could curtail the ongoing recovery, albeit a slow recovery, in the UK economy.

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