British import prices rose in July at the fastest annual pace for five years, after voters’ decision to leave the European Union triggered a sharp fall in the pound.
The rise in import prices may foreshadow a wider pickup in inflation, which Bank of England officials believe could weigh on consumer spending in the year ahead.
The Office for National Statistics said Tuesday that the prices companies pay for metals, oil, food and other materials bought from abroad rose 6.5% on the year in July, the fastest rate of growth since 2011. That pushed up companies’ overall raw material costs by 4.3%, the quickest increase since 2013.
Driving the pickup has been the falling pound. Sterling has declined 13% against the dollar since the shock referendum result, and by 12% when measured against a basket of currencies used by the U.K.’s main trading partners.
The pound’s fall has been a mixed blessing for Steve Brittan, managing director of BSA Technologies Ltd., a Birmingham-based maker of machine tools for the oil and gas industry that can trace its history back to musket-making in the 17th century.
Mr. Brittan said sterling’s slide has made his products more competitive in key export markets such as the U.S. and Mexico. But he said it has also nudged up his costs, as he sources computer controls and other components for his firm’s products from Europe and Japan.
“The low pound helps us with exports. It doesn’t help us buying in,” he said.
The rise in import prices led to an increase in the prices charged by companies at the factory gate in July, which rose 0.3% on the year. While small, that is the first increase in wholesale prices in the U.K. since 2014, the ONS said.
The rise in companies’ costs may eventually feed through to the prices faced by consumers for everyday goods and services, although signs of that were limited in July. Consumer-price inflation rose 0.6% on the year, up from 0.5% in June, the ONS said.
The Bank of England nevertheless expects inflation to accelerate this year and next as the fall in the pound works its way through the economy, driving annual inflation back toward its 2% target in late 2017 and slightly above target in 2018.
The rise in import prices is one of the first pieces of official data covering developments in the economy since the referendum. Further data will be published this week on U.K. retail sales and public finances. Official data for growth in the economy in the third quarter will be published in October.
Surveys and similar gauges of activity have painted a mixed picture of the economy in the wake of the vote. Consumer confidence fell in July, a survey found, but a retailers’ trade group reported that warm weather buoyed spending in stores. Surveys found a decline in business confidence and orders in July but the BOE’s network of regional agents reported that executives were largely sticking with their existing hiring and investment plans.
The BOE cut its benchmark interest rate in August as part of a package of stimulus measures to support the economy. Officials expect the uncertainty triggered by Britain’s decision to exit the EU to weigh on the economy for some time as lawmakers thrash out a new deal between the U.K. and the European Union. The central bank forecasts growth of 0.8% next year, although officials believe the country should avoid recession.