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UK firms face price spikes ahead of Christmas

·3-min read
UK firms face price spikes ahead of Christmas
Thousands of shipping containers at the Port of Felixstowe in Suffolk as subdued momentum in the manufacturing sector again reflected constraints on growth due to the global supply chain crisis. Photo: Joe Giddens/PA via Getty

UK private sector firms railed against another month of rapid input cost inflation, according to November PMI data compiled by IHS Markit and CIPS.

The latest increase in average cost burdens was the fastest since this index began in January 1998, driven by higher wages and a spike in prices paid for fuel, energy and raw materials.

Around 63% of UK private sector companies reported an increase in their average cost burdens during November, while only 1% signalled a decline.

Exceptionally strong cost pressures meant that prices charged by manufacturers increased at the steepest rate since the index began 20 years ago. However, service providers indicated a slight slowdown in output charge inflation to its lowest for three months, with some citing greater resistance to higher selling prices among clients.

Watch: What is inflation and why is it important?

Customer demand continued to rise sharply in November, despite the pass through of higher costs to clients, with the overall rate of new order growth accelerating to a five-month high.

"The million-dollar question will be whether the effects of re-imposed restrictions in some European countries will act as a significant obstacle to this progress and whether supply chain tangles unravel a bit more to ease Christmas shortages from factories, making the last quarter of the year a pleasing end to 2021 for everyone," said Duncan Brock, group director at CIPS.

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Service providers reported a faster recovery in new work than goods producers, Markit said. Subdued momentum in the manufacturing sector again reflected constraints on growth due to the global supply chain crisis.

The headline seasonally adjusted IHS Markit/CIPS Flash UK Composite Output Index registered 57.7 in November, down fractionally from 57.8 in October but comfortably above the 56.3 average seen in the third quarter of 2021.

"The relatively stable PMI reading will probably be enough to convince the Monetary Policy Committee (MPC) that the economy is strong enough to withstand a rate hike in December," said Thomas Pugh, economist at RSM.

"Looking at the PMIs in more detail shows there was a surprise rise in the manufacturing PMI from 57.8 in October to 58.2 in November, driven by strong rises in output, new orders and employment. However, participants noted that severe shortages of materials and staff held back growth.

"The services PMI also fell by less-than-expected to 58.6 in November as domestic demand remained strong."

Service sector growth outpaced the manufacturing recovery in November, although the latter saw its strongest expansion for three months.

Survey respondents typically commented on rising client demand due to improving economic conditions and a continued boost from the roll back of pandemic restrictions.

Meanwhile, new order intakes increased at the strongest pace since June, fuelled by robust rises in business and consumer spending. Exports expanded only marginally, however, as a resurgence in the service economy was offset by falling sales in the manufacturing sector.

The latest rise in new business from abroad in the service sector was the strongest since June 2018, while goods producers reported a drop in export orders for the third month running in November.

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