UK factories hit by 1970s-style cost crunch in inflation surge warning

UK factories are having to swallow the quickest rise in input costs for five decades in a sign that the cost of living crunch gripping consumers is set to tighten, reveals fresh figures published today.

The cost to manufacturers of buying components has accelerated at the steepest pace since 1975, according to Britain’s top business group the Confederation of British Industry (CBI).

The fresh figures underline the severity of the inflation crunch that is sweeping throughout the economy and looks set to chill UK growth this year.

In response to soaring costs, factories are going to launch the quickest wave of price hikes since 1977 in a bid to protect their margins.

They already raised prices in the last quarter at a rate not seen since 1979, the CBI said.

Goods and services produced by factories are used throughout the UK production process, meaning higher prices for their products will strengthen incentives among consumer goods businesses to raise prices as well.

Inflation is already running at a 30-year high of seven per cent, but may reach double-digits in the autumn when the energy watchdog hikes the cap on bills again.

Russia’s invasion of Ukraine has intensified cost pressures in the UK manufacturing sector as a result of it choking supplies of raw materials such as oil, gas, nickel and steel.

“The war in Ukraine is exacerbating the Covid-related supply crunch, with cost increases and concerns over the availability of raw materials at their highest since the mid-1970s,” Anna Leach, deputy chief economist at the CBI, said. 

“It’s little wonder that sentiment has deteriorated sharply over the past three months and manufacturers are now scaling back their investment plans,” she added.