UK factories see output growth slow, prices rocket

British factories saw output growth slow and costs soar in October as they struggled to cope with supply bottlenecks, a survey showed on Monday, underscoring the dilemma facing the Bank of England as it considers a rate hike this week.

The overall IHS Markit/CIPS UK Manufacturing Purchasing Managers’ Index rose for the first time in five months to 57.8 from 57.1 in September. The final reading was little changed from a preliminary estimate.

But the closely watched output index fell to 51.3, its weakest in eight months, from 52.7 in September.

Prices charged by factories jumped by the most in the survey’s more-than-20-year history as they paid more for a wide range of inputs, Markit said.

Some companies said overseas clients cancelled or postponed orders due to port delays and freight capacity problems.

“This low-growth environment is occurring in tandem with a severe upshoot in inflationary pressures, with manufacturers reporting both a near-record increase in input costs and record rise in selling prices,” IHS Markit director Rob Dobson said.

There were some more positive signs from the survey – a slight improvement in new order growth and increased hiring.

“However, these positives could potentially be at risk if supply-chain, Brexit or COVID headwinds rise during the coming months, especially if high inflation leads to higher borrowing costs,” Dobson said.

Investors expect the BoE to raise rates on Thursday for the first time since the COVID-19 pandemic, taking Bank Rate to 0.25 per cent from its all-time low of 0.1 per cent, as it tries to stem rising inflation expectations.

But some economists think the central bank might hold off until it has a clearer idea of the scale of the slowdown in Britain’s recovery from the pandemic.

The “flash” preliminary reading for the country’s dominant services sector, published on Oct. 22, painted a brighter picture with IHS Markit’s index rising to its highest level in three months.