Manufacturers are continuing to increase their prices at record levels in light of escalating inflationary pressures which show little sign of abating, according to a new industry survey published by Make UK and business advisory firm BDO.
The Q1 Manufacturing Outlook survey indicates that UK prices rose from a balance of +52% in the fourth quarter of 2021 to +58% in the most recent quarter. These are the highest balances in the survey’s history and the figures mark the fourth successive quarter where record numbers of companies increasing prices have been reached.
Given that the survey was conducted before the invasion of Ukraine and the substantial increases in the costs of energy and raw materials since, this is likely to have pushed price increases even higher, Make UK and BDO suggest.
Over half of companies which responded to the survey (54.2%) reported a major increase in the cost of raw materials and more than a third (37.4%) said they saw a major increase in the cost of energy during Q1. Almost 10% of companies say that increases in both these indicators represent a ‘threatening increase’ to their business, with almost a quarter of companies (23.7%) saying that it will take more than two years to resolve energy related costs for their business.
In response to the rising cost burdens for manufacturing businesses, Make UK is urging the Chancellor to use his forthcoming Spring Statement – due on 23 March – to delay the planned increase in National Insurance and examine other ways to ease business costs and boost investment.
Further suggestions for the chancellor include reinstating business rates relief for small firms and bringing forward the improvement relief and investment relief exemptions by 12 months. Make UK also calls for an extension to the Super Deduction scheme, with a view to making it permanent at the Autumn Budget.
“Companies are now facing eye watering increases in costs which are becoming a matter of survival for many,” commented Make UK chief executive Stephen Phipson. “While some of the increases are driven globally, the Government cannot use this as a shield from the fact some are self-imposed and, added together, are now forming a perfect storm for companies.
“As a result, the most immediate priority for the Chancellor in the short term must be to use his Statement to do whatever it takes to support companies through this difficult period. The alternative is to leave many businesses facing a tipping point from which some will simply not recover.”
According to the survey, the balance on output fell from +35% in Q4 last year to +24% in the most recent quarter. Total orders also fell slightly from +43% to +42%; as with output, these balances are very high historically.
Recruitment intentions have increased slightly from +22% to +26% while investment intentions also increased slightly to +22% from +27%.
BDO head of manufacturing Richard Austin, Head said: “While having fallen slightly in Q1, output and order balances remain at historically high levels. However, supply shortages are severe, and we are seeing a worrying widening of the gap between supply and demand.
“Manufacturers on the whole are currently managing to meet demand, but this will be difficult to sustain,” he added. “Costs are rising at a speed that they cannot respond quick enough to and, combined with supply chain disruptions which will sadly now be exacerbated by the invasion of Ukraine, manufacturers will be turning to the Chancellor for immediate action.”