According to the CBI November Industrial Trends survey, demand for manufactured goods has remained steady but prices are set to rise in the next three months, even as output growth is expected to slacken.
A balance of +8 per cent of firms reported their order book levels were above normal, consistent with the healthy demand for manufactured goods seen over the course of this year. Export demand is also holding up with the balance of -4 per cent on export order books in line with the average since January and still significantly above its long-term average of -22 per cent.
At +21 per cent, the balance of manufacturers forecasting price rises next quarter is the joint-second highest since 1995 and the same figure as recorded in March. It is slightly lower than May’s 12-year high of +25 per cent and a return to the climate of strong price pressures that seemed to be abating.
Twenty six per cent of firms foresee an increase in output in the coming quarter, but 17 per cent expect a decline. The balance of +9 per cent is the lowest for a year, considerably lower than February’s peak of +28 per cent, but still above the levels of 2005.
All three manufacturing sub-sectors have seen a slowdown in expected output growth since the beginning of the year, but this has been less marked amongst producers of consumer goods. This month a balance of +38 per cent of these manufacturers also feel able to raise their prices, significantly higher than firms making capital or intermediate goods.
‘Recent tightening of economic policy is starting to be felt and manufacturers are downgrading their expectations for future growth in their output,’ said CBI Chief Economic Adviser Ian McCafferty. ’But despite this, firms are having to push up their prices to compensate for heavy cost burdens.’
He added: ’Last month’s quarterly survey recorded the highest expectation of input cost rises in 12 years. With oil at over $90 a barrel, up more than 50 per cent on a year ago, plus the pressure of other rising commodity costs, manufacturers operating on tight margins clearly feel they have little choice.’