Concerns over Inflation Rise as Manufacturers’ Price Expectations Climb to 4-year High

Manufacturing

The balance (the percentage of those firms reporting an increase minus those reporting a decrease) of manufacturing firms expecting the price of their goods to increase over the next three months rose sharply to +46%, from +27% in the previous quarter and is now at its highest level since Q4 2017, a time when the post-EU referendum devaluation of sterling pushed UK consumer price inflation to 3%.

Raw materials costs are cited as the key driver of rising prices for manufacturers, with some firms pointing to continued post-Brexit and Covid-19 disruption. 87% of production and manufacturing and 72% construction firms cited raw material prices in Q1 2021, up from 80% and 67% respectively in the previous quarter.

Services

In the services sector, the balance of firms expecting prices to increase over the next three months rose to +27%, from +15% and is now at its highest level since Q1 2020.

Within services, retail & wholesaling firms were most likely to expect price increases (56%) in the next three months with raw material costs as a key pressure. This was followed by transport and distribution firms on 48%.

45% of hotel and catering sector businesses are expecting price increases in the next three months, as Covid restrictions ease. In contrast, professional and consumer services firms were least likely to expect an increase in prices (both 26%).