While manufacturers saw a modest improvement in their order books in June, the rise in prices of manufactured goods will continue almost unabated over the next three months, the CBI has warned.
In May, the balance of manufacturers reporting products would get more expensive reached a 13-year high. This month, the figure has barely changed.
Firms rated their total orders as normal for June, which is a slight improvement on the previous two months but not as good as it was at the turn of the year. Coming after two years of healthier demand, however, this month's figure looks lacklustre.
Thirty-one per cent of firms in the CBIs June Industrial Trends Survey reported order books as above normal and 30% said they were below normal, giving a balance of +1%. Exporters order book levels have also improved since May (a balance of -5% compared with -12% in the previous two months).
For the third month running, manufacturers expect their output to be broadly unchanged over the coming three months (a balance of +2% is essentially 'flat' ).
The trend of steep price rises, which has been with us since January, is set to continue as 39% of firms expect to put up prices while 10% say they will lower them in the next three months.
The rounded balance of +28% is only just short of last months +30%, the highest since February 1995 (+31%). In this survey period the price of a barrel of oil averaged $129.48, an increase of 9.6% on May.
Expectations of price rises were already steep among producers of consumer and intermediate goods. It has only been more recently that expectations among makers of capital goods - such as plant and machinery - have reached a similar level.
Ian McCafferty, the CBIs Chief Economic Adviser said:
"Manufacturing demand is holding up reasonably well. Manufacturers, especially those exposed to the global economy, have been less affected by the slow-down in domestic spending than other sectors.
"At the same time, however, there has been no let up from the impact of higher costs on manufacturers, and the CBIs data shows firms still having to pass them on in higher prices."
1. A balance is the difference between the percentage of manufacturers reporting an increase and those reporting a decrease.
2. The June 2008 CBI Industrial Trends Survey was conducted between 27th May and 11th June 2008 and 555 manufacturing firms replied.
3. During the survey, the pound averaged euro 1.26 and $1.97, while Brent Crude averaged $129.48 per barrel, compared with euro 1.27, $1.97 and $118.10 in May.
4. The CBI is the UK's leading business organisation, speaking for some 240,000 businesses that together employ around a third of the private sector workforce. Member companies, which decide all policy positions, include: 80 of the FTSE 100; some 200,000 small and medium-size firms; more than 20,000 manufacturers; over 150 sectoral associations.