Prices set to jump as factories battle surging costs - CBI
UK manufacturers are poised to ramp up prices as they battle rising costs and labour shortages, a closely-watched survey showed on Tuesday.
According to the latest Industrial Trends Survey from the Confederation of British Industry, output volumes slowed in the three months to January, to 14% from 29% in December.
However, output increased in 10 out of the 17 sub-sectors, and a net balance of 23% of manufacturers expect output growth to pick up in the next quarter.
The survey also showed the strongest export demand growth since July 2018, while the total orders balance remained unchanged at 24%, above consensus for 22%.
But optimism weakened, with the balance falling to -9% from 2% in December, as businesses faced sharply higher costs and ongoing labour shortages.
Average costs growth accelerated at the fastest pace since April 1980, with a similar rate of growth predicted for the next quarter, while average domestic prices grew at a rate similar to that seen in October, which was the quickest pace since April 1980.
The proportion of manufacturers expecting domestic prices to rise over the next three months rose to 66%, the highest since 1977. The percentage of firms reporting limited capacity due to a lack of skilled workers, meanwhile, was 42%, the highest since October 1973.
Rain Newton-Smith, CBI chief economist, said: "Global supply chain challenges are continuing to impact UK firms, with our survey showing intense and escalating cost and price pressures.
"Against the backdrop of rising energy prices, which are adding to inflationary pressures, short-term action is needed from the UK government to find urgent solutions for firms that are struggling."
Tom Crotty, chair of the CBI Manufacturing Council as well as group director at chemicals firm Ineos, said: "It is no surprise that manufacturers remain acutely concerned about the impact of labour shortages on their business. Alongside this, manufacturers continue to face rising energy costs and broader inflationary pressures amid ongoing supply chain disruptions."
Gabriella Dickens, senior UK economist at Pantheon Macroeconomics, said: "We expect manufacturing output to return to its pre-Covid level in the second quarter, having undershot it by about 2.0% in the fourth quarter.
"Granted, Omicron appears to have weighed on manufacturers’ optimism. And the additional checks on import due to Brexit, combined with production and shipping delays in other countries that are more vulnerable to Omicron, will cause some further disruption in the near term.
"But firms appear keen to invest. And as supply constraints ease, manufacturing output should spring back."