UK factory output showed its first material growth in almost two years as the economy recovered but supply shortages and cost pressures pointed towards future price increases, a CBI survey showed.
Output volumes rose at the fastest pace since December 2018 in the three months to May, recording a score of +18 compared with +3 a month earlier, the CBI said. Output rose in 12 out of 17 categories, led by chemicals, electronic engineering and metal products. Manufacturers expect output to accelerate in the next three months.
Order books improved to their strongest since December 2017 and were “above normal” for the first time since February 2019, the business lobby’s survey of 272 manufacturers showed.
Stocks of finished goods fell to the lowest position since July 2017 and manufacturers also faced rising costs. These trends led factory managers to expect their prices to increase rapidly over the next three months, adding to concerns about rising inflation.
Anna Leach, the CBI’s deputy chief economist, said: “Manufacturing activity rebounded this month, with strong improvements seen across total order books and output volumes. But firms are still feeling the chill as supply shortages fuel cost pressures, reflected in expectations for strong output price inflation in the coming quarter.”
Leach said the government’s reopening roadmap was increasing confidence but that manufacturers needed clarity on social distancing and workplace testing. She said this would also help ease supply chain, cost and pricing pressures.
