Manufacturer costs at record high

Apr 2 2008 by Iain Laing, The Journal

HOPES of an interest rate cut have been dampened by new data showing manufacturer product prices last month rose at their fastest rate for at least nine years.

The Chartered Institute of Purchasing and Supply (CIPS) showed that the rising cost of oil by-products, such as fuel and plastics, had pushed its reading on manufacturers’ output inflation to 60.6 in March – the highest since records began in 1999.

The rate of raw material inflation faced by the sector was also up to 76.3 last month – the second highest reading on record.

Economists at the Royal Bank of Scotland said the inflation pressures highlighted by the data would give the Bank of England further cause for concern in cutting rates.

They said this may restrict their ability to trim rates throughout the year, but was unlikely to prevent an April move lower next week.

The report suggested the slowdown in the global economy was now feeding through to the manufacturing sector, with some firms noting that the woes seen by major trading partners such as the US and Eurozone had weighed on efforts to raise export activity.

Rob Dobson, an economist at NTC, said: “Although recent interest rate cuts may have provided support for some manufacturers, weaker demand as a result of tough credit conditions, slower global economic growth, client uncertainty and an associated reluctance to sanction non-vital expenditures means that a further loosening of monetary conditions should still be expected in the near term.”