Manufacturers plan fast price hikes

Manufacturers signalled more pain for consumers today after it emerged major firms were planning the biggest push on prices since January 1989.

A balance of 27% of manufacturers said they will raise output prices over the coming quarter, an increase on the 24% figure recorded last month and above the long-term average of 1%, according to a CBI survey.

Large manufacturing firms said they will put prices up at the fastest rate since January 1989.

Despite the squeeze on margins and the disruption caused by Japan's tsunami, the survey revealed that UK manufacturers still have healthy order books.

A balance of 1% of companies said orders were above normal, an improvement on May's level of minus two and well above the long-term average, the CBI added.

Manufacturers are still optimistic about the future, with a balance of 13% expecting solid order growth over the next quarter, although this is slightly down from earlier this year when confidence hit a four year high.

The balance of manufacturers planning to raise prices in the next three months was still well below the 36% recorded in April, which could be a sign that some are finding it hard to push through price increases and protect their margins despite rising input costs.

Export orders also picked up, with a neutral balance saying they were above normal, up from minus 3% the previous month.

Ian McCafferty, CBI chief economic adviser, said: "Inflationary pressures remain acute. High commodity prices and import costs mean firms still expect to raise factory gate prices markedly over the next three months.

"UK manufacturers currently have healthy order books. Factory output is still set to rise solidly over the coming quarter but expectations for growth have moderated compared with recent months, when output prospects were particularly strong."

He said this reflects the "softer patch" experienced by manufacturers in other countries which is largely due to the disruption in supply chains caused by the disaster in Japan.

Howard Archer, chief economist at IHS Global Insight, said the increase in orders was welcome news for the sector given the recent flurry of data that suggested it was coming off the boil.

He said: "While the survey is relatively encouraging, the overall impression remains that manufacturers are now finding life more challenging as stock rebuilding wanes and tighter fiscal policy weighs down on domestic demand.

"There are also signs that global demand is slowing and dampening export orders."