UK manufacturers' falling costs creates buyers' market

11 November 2011

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12 November 2011 | Angeline Albert

Downward pressure on UK producers’ raw material costs in October is creating a “buyers’ market” according to the Office for National Statistics.

The Producer Price Index (PPI), published by the Office for National Statistics on Friday, revealed a fall in manufacturers’ input costs, particularly oil, which is resulting in better prices for producers’ buyers.

The PPI, which measures the price movement of goods bought (input) and sold (output) by UK manufacturers, shows that between September and October, the total input price index fell 0.8 per cent, mainly reflecting price drops in crude oil, imported metals and home produced food.

Producers’ costs fell by 0.5 per cent in August, September and October, a trend that allowed manufacturers to keep their average selling prices for purchasers unchanged last month.

Chris Williamson, chief economist at Markit, said: ”Further downward pressure on manufacturing input costs and selling prices is likely in coming months, as slowing global demand for commodities means an increasing shift to a buyers' market for many goods and earlier steep price rises fall out of year-on-year comparisons.”

Prices manufacturers’ charge at the factory gate in October were up by 5.7 per cent on a year ago, but this is the lowest rate of increase since May and down from 6.3 per cent in September. Between September and October, the price of imported materials as a whole, including crude oil, fell 1.2 per cent.

Earlier this month, the Markit/CIPS PMI showed that the UK manufacturing sector had fallen back into contraction in October and was at a 28-month low following a decline in output, new orders and employment.  

Williamson added: "The gloomier picture is that price falls are a symptom of very weak global demand and merely highlight the difficulties that manufacturers and their suppliers are facing at the moment.”

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