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Brexit latest: Manufacturing price pressures increase again in February

The balance of respondents to the CBI survey expecting prices to be higher in three months hit 32 per cent, the highest since April 2011

Ben Chu
Economics Editor
Monday 20 February 2017 13:05 GMT
Some 38 per cent of manufacturing firms expected to increase prices over the quarter
Some 38 per cent of manufacturing firms expected to increase prices over the quarter (Getty)

Expectations of price inflation among manufacturers hit their highest in six years in February according to the latest Industrial Trends survey from the CBI.

The balance of respondents expecting their output prices to be up in three months hit 32 per cent, the highest since April 2011.

Some 38 per cent expected to increase prices over the quarter, while just 6 per cent expected to cut them.

However, the CBI also reported that the balance of respondents reporting better than normal order books hit a two-year high of 8 per cent in the month, beating City of London estimates.

Around 27 per cent of firms said orders were above normal and 19 per cent said below.

Price pressures highest in six years

"Stronger demand and production is good news for UK manufacturers, though the weaker pound continues to push up input costs and this is now feeding through to output price inflation expectations," said Rain Newton Smith, the CBI's chief economist.

The trade-weighted value of sterling has sunk by 12 per cent since last June's Brexit referendum and economists expect the slump to push the domestic rate of consumer price inflation above the Bank of England's 2 per cent target over the coming months, and close to 3 per cent by the end of the year.

The CPI reading rose to 1.8 per cent in January.

How the FTSE and Pound have changed since Brexit

Samuel Tombs, an economist at Pantheon, said manufacturers' cost pressures were more significant than the relatively robust orders reading.

He noted that the strength of order books looked dependent on domestic demand, which would be vulnerable when firms' input price pressures were passed on to consumers.

The balance of export orders in the survey fell to -10 in February, down from -9 in January, with 19 per cent reporting orders above normal and 29 per cent below.

"We continue to expect the manufacturing revival to lose considerable pace later this year," said Mr Tombs.

The CBI data is consistent with Office for National Statistics data which last week showed factory input prices rising at an annual rate of 20.5 per cent in January.

The CBI questioned 471 manufacturing firms between 25 January and 13 February.

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