Manufacturing output has hit a two-and-a-half year high, but businesses have warned they may be forced to raise prices as input costs jump on the back of the weaker pound.
The latest Confederation of British Industry (CBI) industrial trends survey showed that output grew to its highest level since mid-2014 in the three months to December, to a balance of 19%, driven by domestic demand and stronger performance by the mechanical engineering and aerospace industries.
It marks the highest balance for output volume since July 2014, when it stood at 23%.
The poll, which surveyed 482 businesses, also showed that the order balance rose to 0% in December, compared to minus 3% in November, its highest since April 2015.
However, export orders softened from a balance of minus 11% to minus 15%.
The CBI said businesses were expecting production growth in the first three months of 2017 to remain “solid”, despite forecasts for price rises in the new year.
Manufacturer intentions to raise prices over the next three months jumped to a balance of 26% from 19% last month, the survey showed.
The CBI’s chief economist Rain Newton-Smith said: “It’s good to see our manufacturers ending the year on a high note with growth in production the strongest since summer 2014 and total orders still robust.
“But the weakness of sterling is pushing up the cost of imports, and our survey shows strong signs of this feeding through to higher factory gate prices.”
The pound has dropped more than 17% against the US dollar and 9% against the euro since the EU referendum
He added: “After a challenging 2016, UK manufacturers will want to build on the positive momentum going into the new year, with the Government’s recent commitments on a modern industrial
strategy and innovation investment a welcome tonic.”
However, Howard Archer, chief European and UK economist at IHS Markit, warned that the triggering of Article 50 could end up raising uncertainty and knocking domestic demand for “big ticket consumer items,” while shoppers will be hit by “diminishing purchasing power”.
“Furthermore, the weakened pound has appreciably pushed up manufacturers’ prices for oil, commodities and imported inputs, which will squeeze margins and increase pressure to rise prices.”
Recommended for you
