Costs up, demand down: Manufacturers suffer biggest squeeze since 2022
Costs for the UK’s manufacturing sector have risen at the fastest pace in three and a half years, new data has indicated, as the energy price shock from the Iran war hammers businesses.
S&P Global research has found that manufacturers suffered the highest increase in input prices since late 2022 when Russia’s invasion of Ukraine sent gas prices spiralling.
Survey data also showed that the jump in input inflation was the steepest since the sterling crisis in 1992.
Manufacturers told researchers that changes in oil and gas prices, which have risen by over 70 per cent since the war started, could also dampen demand among buyers over the coming months.
Output has already suffered from a decline as momentum enjoyed in previous months “hit the buffers”, economists have said.
S&P Global’s survey of hundreds of producers has suggested that output has declined overall due to a contraction in intermediate goods manufacturing rather than consumer goods.
Production volumes have been scaled back as a result of uncertainty around the impact of the war in the Middle East, researchers said.
Mike Thornton, head of industrials at the accountancy RSM, said: “Demand is being squeezed. New orders have ticked down, leaving the sector feeling pinched.
“The control of the Strait of Hormuz is one of the biggest commercial issues for manufacturers and issues will pile up the longer access is blocked.
“The increase in energy costs will be a persistent headwind, but worries relating to supply chain disruption are growing.”
Manufacturing sector fears ‘permanent’ change in prices
The overall manufacturing PMI remained in the green at 51, slightly above the benchmark value for neutrality in activity.
But the outlook has deteriorated as sentiment decreased among all sectors. Smaller businesses were more worried than larger companies.
Vendor delivery times were also at a four-and-a-half year high though demand in March “held up comparatively well in the face of rising market uncertainty”.
Selling prices meanwhile rose at the steepest pace since May 2025 while employment also deteriorated quicker than at any time since September.
Cara Heffey, PwC’s industrials and services chief in the UK, said business owners may fear that a rise in costs is permanent rather than temporary.
“Manufacturers will be starting to think less about immediate disruption and more about their options in the longer-term.
“With businesses dealing with the shock waves from rising energy prices, delivery times lengthening and cost pressures intensifying, they are weighing up whether to hold additional precautionary stock, rethink logistics routes, or accept higher input costs as a more permanent feature rather than a short‑term shock.”