Inflation Pressures Manufacturers Despite Rising Orders

The volume of orders in the UK and abroad is growing at the fastest rate for 16 years, leading to a solid rise in output, according to the CBI’s latest quarterly SME Trends Survey (PDF).

Of the 414 respondents to the CBI survey, 39% of manufacturing firms reported a rise in the volume of domestic orders in the three months to April, and 23% a fall. Export orders rose by 23% in the same period.

However, production costs have increased rapidly, resulting in a sharp rise in domestic prices. In addition, inflationary pressures show no sign of easing in the coming quarter to June, with firms expecting unit costs to increase sharply again, according to the CBI.

Lucy Armstrong, chair of the CBI’s SME Council, said:

“Smaller manufacturers are enjoying strong demand for goods at home and abroad. However, inflationary pressures remain a dark cloud, pushing up the cost of production and eating into profit margins. Manufacturers have raised output prices rapidly to cope, and expect to continue doing so over the next quarter.”

Paul Dobson, programme manager for the Manufacturing Advisory Service North East (MAS NE), sees similar trends, especially in engineering. He said:

“It is encouraging to see manufacturing outputs continuing to rise, particularly in export markets.”

“Cost pressures remain a significant concern and many engineering companies are struggling with increasing and unpredictable costs, particularly in the metals market, affecting their ability to provide fixed estimates without significant risk.”

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