- Iran conflict drives sharpest rise in UK factory prices since 2022
- Rising costs linked to the Iran conflict are pushing up input prices.
- The Bank of England is closely monitoring whether inflation spreads beyond energy.
British manufacturers increased their prices at the fastest rate in nearly three years during May, as the Iran conflict and disruption to global supply chains pushed up costs across a wide range of industries.
The latest manufacturing Purchasing Managers' Index (PMI) from S&P Global suggests UK manufacturing is facing a fresh wave of inflationary pressure, with businesses paying more for everything from energy and fuel to metals, chemicals and packaging. The findings could add to concerns at the Bank of England as policymakers assess whether rising costs are beginning to spread more widely through the economy.
Manufacturers reported the steepest increase in input costs since June 2022, while the rate at which companies passed those costs on to customers was among the highest recorded in the survey's history.
Costs climb as supply chains come under strain
The rise in costs has been linked to several factors, including higher energy prices following disruption around the Strait of Hormuz, as well as broader geopolitical tensions, tariffs, labour costs and ongoing supply chain challenges.
According to S&P Global, manufacturers reported paying more for chemicals, electronics, fuel, food ingredients, plastics, metals, timber, paper and packaging materials.
The survey also pointed to stronger factory activity. The headline manufacturing PMI rose to 53.9 in May, up from an earlier estimate of 53.7 and its highest level since May 2022.
However, economists suggested the improvement may not necessarily signal stronger long-term demand.
Rob Dobson, director at S&P Global Market Intelligence, reportedly said some businesses appeared to be bringing forward orders to avoid expected price increases and potential supply shortages later in the year.
He reportedly said the recent surge in activity could fade once customers have built up sufficient stock levels.
A new inflation worry for the Bank
The findings arrive as the Bank of England keeps a close watch on the inflationary impact of higher energy prices triggered by the Middle East conflict.
Governor Andrew Bailey reportedly said on June 27 that policymakers are particularly concerned about whether rising energy costs begin feeding through into the prices of everyday goods and services. If that happens, pressure could build for further interest rate action.
The central bank has so far left interest rates unchanged, hoping businesses will absorb at least some of the additional costs rather than passing them entirely to consumers.
The latest survey, however, suggests that manufacturers are increasingly choosing to raise prices instead.
The last time factory selling prices remained at similarly elevated levels for a prolonged period was between May 2021 and June 2022, when post-pandemic supply disruptions and Russia's invasion of Ukraine helped push UK inflation above 11 per cent.
While the current situation remains different in scale, economists are likely to be watching closely for signs that rising costs in factories begin feeding into wider consumer prices in the months ahead.
