UK factories stung by ‘relentless’ cost hikes as supply chain crisis rumbles on

UK factories are being stung by record cost increases as the supply chain crisis continues to drag on, according to a closely watched survey released today.

Prices for raw materials and crucial inputs used by British manufacturers accelerated at the fastest pace since IHS Markit and the Chartered Institute of Procurement and Supply (CIPS) started tracking the data 30 years ago.

The fiery cost increases were driven by supply chains buckling under the weight of red hot demand from manufacturers generating severe mismatches between supply and demand.

A shortage in the raw materials market is “exerting massive upwards pressure on input” prices and pushing firms’ costs “relentlessly” higher, warned Rob Dobson, director at IHS Markit.

Manufacturers hiked prices at a near record high over the last month to protect margins from swelling costs.

The PMI is the latest in a string of data releases that will agitate officials at the Bank of England.

Rising prices for manufactured goods will likely increase costs for consumer-facing businesses, strengthening incentives for them to raise prices, which will intensify inflationary pressures in the UK economy.

Prices are already rising at a rate of 4.2 per cent, the highest print in nearly a decade and more than double the Bank’s two per cent target. 

The Old Lady held rates at a record low 0.1 per cent last month despite forecasting inflation will scale to five per cent next spring.

Despite firms struggling to find materials to produce goods, IHS Markit and CIPS’s purchasing managers’ index (PMI) rose to a three-month high of 58.1 in November, up from 57.8 in October.

Higher prices for manufacturers’ products is likely to “slow” demand in the coming months, clouding the outlook for the sector, according to Samuel Tombs, chief UK economist at Pantheon Macroeconomics.

The Omicron variant is expected to increase inflation if it triggers tougher restrictions to curb its spread.

“New restrictions in the UK and abroad may add to supply chain disruption in the short term and hold back the pace at which bottlenecks are resolved,” Martin Beck, chief economic advisor to the EY Item Club, said.