U.K. Factories Warn of Mounting Price Pressures From Weak Pound

  • Manufacturers raise price expectations to most since 1995
  • New orders rose at fastest pace in two years at turn of year

Smaller manufacturers are warning of increasing price pressures as the collapse in the pound since Britain voted to leave the European Union drives up the cost of raw materials.

Costs built at the quickest pace since 2011 in the three months through January, prompting factories to raise their expectations for output-price inflation to the highest level in more than two decades, the Confederation of British Industry said in a report published Thursday.

On the positive side, orders rose the most in two years, the survey of 422 small and medium-sized firms found. In addition, firms across the sector are upbeat about the outlook after exporters posted only “tepid” growth in the latest three months.

“The pickup was largely shouldered by domestic demand with exports yet to see any material boost from the weakness in sterling,” said Alpesh Paleja, principal economist at the CBI. “But the lower pound is clearly stoking cost pressures, which in turn is pushing up factory-gate prices. This will eventually feed through to prices at the till, so further rises in consumer-price inflation are on the cards.”

The survey is the latest to highlight the effect of sterling’s 15 percent slide since the June Brexit referendum. A measure of factory-input prices in IHS Markit’s monthly Purchasing Managers Index jumped to the highest since the series began in 1992. The Bank of England is expected to raise its inflation forecasts when it publishes its quarterly outlook at noon on Thursday.

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