Inflation peril after factory prices rocket

Julian Harris
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BRITAIN’S manufacturing boom looks set to continue – although rising factory gate prices are threatening to stoke inflation even higher, a survey revealed yesterday.

Manufacturing output prices rose at the fastest pace since October 2008 in the final months of last year, according to a survey by the Confederation of British Industry.

And in the first months of this year prices are expected to continue their sharp rise. The balance of manufacturers expecting a rise in the price of exported goods is the highest since January 1995, the CBI said.

“Manufacturers seem to be having considerable success in passing on chunky price rises to customers,” said Samuel Tombs of Capital Economics.

“Thankfully for the rest of us, output price inflation tends to take over a year to feed through to consumer price inflation -- but the survey will no doubt add to fears that inflation will be slow to fall from its high rate later this year,” he warned.

Factory output increased further in the final quarter of 2010, the CBI reported. “The manufacturing sector has continued to recover at a brisk pace,” said Tombs.

The number of manufacturers recording a rise in output was 16 per cent higher than the number reporting a fall – up from October’s positive balance of nine per cent.

“This was driven primarily by growth in export orders (+13 per cent),” the report said.

The news chimes with recent positive data for the sector.

Last week the government’s Office for National Statistics (ONS) confirmed that manufacturing had grown for 13 straight months, and was up by 5.6 per cent in November, compared with the previous year.

Manufacturers expect output to keep growing in the coming months, with a positive balance of 18 per cent of firms expecting more export orders, the CBI survey said.

While total orders remain below “normal” levels, “the figure remains slightly above its long-run average,” said Simon Hayes of Barclays Capital.

“And it is worth bearing in mind that this survey has been consistently less buoyant during the recovery than other data,” he said.