Manufacturing lab

Inflation warning as manufacturers increase prices

Manufacturers sounded a warning of more inflationary pressures today after new figures showed they increased prices at the fastest rate since October 2008.

A balance of 13% of manufacturers put prices up over the past three months, hitting its highest reading for 27 months, according to a survey by the CBI industry lobby group. And the balance of manufacturers that plan to hike prices for UK-bound goods over the next quarter is higher than at any time since July 2008.

The survey also revealed that the manufacturing recovery is still on track, with output levels, jobs and optimism all showing positive scores, although order books revealed a surprising decline.

Economists said the news of price hikes would put further pressure on the Bank of England to raise interest rates from their record low of 0.5%, after figures released this week showed inflation rose to 3.7% in December.

Samuel Tombs, an economist at Capital Economics, said: "Manufacturers seem to be having considerable success in passing on chunky price rises to customers.

"Thankfully for the rest of us, output price inflation tends to take over a year to feed through to consumer price inflation. But the survey will no doubt add to fears that CPI inflation will be slow to fall from its high rate later this year."

The CBI survey revealed that a balance of 16% of manufacturers had seen a rise in output over the past three months, compared to a balance of 9% in October. A balance of 17% expect an increase in orders in the next three months, with exports leading the demand.

The jobs situation also continued to improve, with a balance of 8% saying they had taken on more staff in the past quarter.

But there was some sobering news for orders after a balance of 16% said they were lower than normal, compared to a balance of 3% in December.

CBI chief economic adviser Ian McCafferty said: "The recovery in the manufacturing sector is firmly in place and looks set to continue.

"But manufacturers have come under intense pressure to pass on rising costs - they have increased prices markedly in this quarter, and expect to raise them at an even faster pace over the next three months. This will drive further inflationary pressure in the wider economy."

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