Manufacturing sector to face sustained inflation

27 April 2011

27 April 2011 | Lindsay Clark

UK manufacturers expect to pass on increasing costs to buyers in the second quarter of 2011.

A survey by the Confederation of British Industry has found that mounting costs and increasing demand are creating an environment for price rises.

The 451 manufacturers that responded to the April Quarterly Industrial Trends Survey said inflationary pressures showed no sign of abating over the coming quarter.

The number of companies expecting costs to increase exceeded those that believe cost will fall by 43 percentage points. Similarly, the difference was 36 points in favour of a rise in domestic prices, and 25 points for export price increases.

John Cridland, CBI director-general, said that although strong demand and rapid restocking over the past quarter had led to increased production, costs had jumped markedly. “This is unsurprising given the recent surge in oil and other commodity prices,” he said.

Chris Williamson, chief economist with research firm Markit, said there were worrying signs from a slump in orders in April and ongoing price pressures, with expectations rising to their highest since January 1990.

“Rising costs in the goods-producing sector will add to inflationary pressures,” he said. “The extent to which this translates into higher inflation [for consumers] is likely to be limited, however, because retailers may be forced to offer increasing discounts in the face of weakened household sentiment.”

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