UK businesses hit by record cost inflation but continue growth

The closely-followed IHS Markit/CIPS Flash UK Composite PMI report hit a reading of 57.7 for November, down from 57.8 last month.

Henry Saker-Clark
Tuesday 23 November 2021 10:37
Rising freight costs have contributed to soaring inflation for UK businesses (Yui Mok/PA)
Rising freight costs have contributed to soaring inflation for UK businesses (Yui Mok/PA)

The UK’s private sector saw cost inflation hit another record high this month amid rising wage, fuel and energy costs for firms.

It came as growth in the private sector dipped only marginally as companies reported a continued increase in consumer demand.

The closely-followed IHS Markit CIPS Flash UK Composite PMI report hit a reading of 57.7 for November, down from 57.8 last month.

Scores above 50 represent growth, while anything below that is a contraction.

The flash figures are preliminary and based on responses from most of the survey participants.

A combination of sustained buoyant business growth, further job market gains and record inflationary pressures gives a green light for interest rates to rise in December

Chris Williamson, IHS Markit

Chris Williamson chief business economist at IHS Markit, said the survey’s latest findings could help usher in an interest rate increase next month after the Bank of England surprisingly decided to hold rates earlier this month.

He said: “A combination of sustained buoyant business growth, further job market gains and record inflationary pressures gives a green light for interest rates to rise in December.

“Output growth across manufacturing and services came in slightly faster than expected in November, albeit heavily skewed towards the service sector as factories continued to struggle with supply shortages and falling exports.”

The UK’s services industry drove growth over the period, as it reported a 58.6 reading for November amid the strongest increase in new business since June 2018.

Despite recovering sales volumes, firms in the services sector said margins were put under pressure by the surge in input costs and a slower increase in prices charged to clients.

Severe shortages of materials and staff held back growth and led to escalating input prices

IHS Markit/CIPS Flash UK Composite PMI report

Meanwhile, the manufacturing sector saw growth improve but it remained comparably modest, with a 52.9 reading for the month.

The report highlighted that “severe shortages of materials and staff held back growth and led to escalating input prices”.

Duncan Brock, group director at CIPS, said: “Another survey record of rising costs for fuel and wage demands led to the highest inflationary pressures since January 1998 as 63% of supply chain managers paid more for their materials.

Shortages of staff and production stoppages due to a lack of supplies added to frustrations in the manufacturing sector as some machines fell silent.”

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