UK Manufacturers Boost Prices at Fastest Pace in Four Years Amid Rising Costs
Manufacturing Sector Faces Price Pressures and Supply Chain Disruptions
Manufacturers Respond to Rising Costs
LONDON, June 1 (Reuters) - British manufacturers raised their prices at the fastest rate since June 2022 last month in response to a big increase in costs as the Iran war disrupts supply chains, according to a survey likely to concern the Bank of England.
Survey Insights and Output Trends
S&P Global also said the output balance of its manufacturing Purchasing Managers' Index for Britain rose in May to its highest since the start of the conflict at the end of February, but this appeared to reflect a front-loading of orders to get ahead of expected further price rises and supply-chain problems.
Expert Commentary
"This bounce will fade once customers have built up sufficient safety stocks," S&P Global Market Intelligence director Rob Dobson said.
PMI Activity Index Performance
The headline manufacturing PMI activity index - which can be distorted by supply chain disruption - rose to its highest since May 2022 at 53.9 after being revised up from an initial reading of 53.7.
Bank of England's Response and Economic Implications
Britain's central bank is closely watching the degree to which higher energy prices caused by the closure of the Strait of Hormuz spread through the economy, but it has kept interest rates unchanged for now.
Potential for Interest Rate Changes
If price rises go beyond energy to general goods and services, that would increase the likelihood of the BoE raising rates, Governor Andrew Bailey said on Friday.
Breakdown of Input Costs and Contributing Factors
The manufacturing PMI showed firms' input costs rose last month at their fastest pace since June 2022, driven by higher prices for chemicals, electronics, energy, foodstuffs, fuels, plastics, metals, packaging, paper and timber.
Factors Cited by Manufacturers
"The war in the Middle East, commodity market movements, geopolitical strife, supply chain issues, material shortages, tariffs, rising labour costs and higher taxes were all mentioned by panel members," S&P said.
Passing Costs to Customers and Historical Context
While the BoE hopes that firms will absorb increased costs, the PMI survey shows manufacturers passing them on to customers at one of the fastest rates in the survey's history.
Historical Comparison
The output price index has only been higher on a sustained basis between May 2021 and June 2022, when post-COVID disruption and Russia's full-scale invasion of Ukraine helped drive British consumer price inflation above 11%.
Reporting Credits
(Reporting by David Milliken; Editing by Toby Chopra)
