Breaking finance and business news, tax information, jobs and more for finance directors and senior finance professionals.

The highest balance of manufacturing firms since 1995 have told the CBI their products will get more expensive over the coming three months, as rising oil prices drive up costs.

At the same time though, manufacturers said their order books are 'below normal' and that they don't expect output to grow in the next quarter.

Output volume not expected to grow 

In the CBI's May Industrial Trends Survey, 21 per cent of firms rated their total order book as above normal and 31 per cent said it was below, giving a balance of -10 (-12 for export orders).

Firms also do not expect their volume of output to grow over the next three months but believe it will flatten out - a zero balance, the same as in April's survey.

Despite shrinking demand, 36 per cent of manufacturers expect they will put their prices up over the next quarter, compared to just 6 per cent who say they will fall.

The balance of +30 is the strongest since February 1995 (+31). It coincides with the price of a barrel of oil averaging $118.10 in the survey period, a month-on-month rise of 14 per cent.

Metals prices rose almost 5 per cent between April and May, food continued to become more expensive, and these rises were exacerbated by the pound slipping against the dollar.

Increasing costs passed on 

The need to pass on these cost pressures is being felt most intensely among capital goods firms, like machinery and plant manufacturers.

It is makers of intermediate goods, however, which include energy and commodity intensive industries, who continue to expect the highest rate of price inflation.

Ian McCafferty, chief economic adviser at the CBI, said it was clear from the pricing data in the survey that manufacturers were really feeling the impact and having to pass their increasing costs on.

He pointed out that oil prices rose more than 75 per cent over the last year, and 14 per cent in the past month alone.

McCafferty said that these rising inflationary pressures made it ever more unlikely that we will see the cuts in interest rates expected by the markets only a few weeks ago.

"The survey also shows that the sector is now being affected by the slowdown seen in other areas of the economy. For the second month in a row firms are saying orders are below normal and that output levels will be flat," he concluded.

Related articles

• Manufacturing and retail administrations down
• Regional mixed picture in manufacturing
• Oil prices could damage any recovery
• Look outside London, says BCC

Related links

• CBI