(Bloomberg) — U.K. manufacturers raised prices at the fastest pace in more than four decades in a bid to cover soaring raw material and energy costs, and a further acceleration is expected, according to the Confederation of British Industry.
In its first quarterly survey of the sector since Russia invaded Ukraine, the CBI found companies from food producers to auto makers under growing pressure in the three months through April.
Costs jumped the most in almost half a century, and there is no immediate relief in sight, the business lobby group said. Meanwhile, demand eased, investment intentions weakened and optimism fell more sharply than at any time since the coronavirus pandemic began.
The report adds to the growing sense of crisis engulfing the U.K. economy as surging prices fueled by the war in Ukraine hit companies and consumers alike. It highlights the delicate balancing act facing the Bank of England, which has to raise interest rates to tame inflation but risks tipping the economy into a recession if it does so too aggressively.
The drop in investment sentiment is particularly worrying as corporate spending is widely expected to make a strong contribution to economic growth this year. Spending plans have weakened across the board since January, with investment in buildings now expected to fall in next 12 months, the CBI said.
On a more positive note, factories added workers at a healthy pace and expect to step up employment in the coming months. A lack of skilled labor, along with shortages of materials and components, were cited as the main supply-side constraints on activity.
The survey of 250 firms was carried out between March 24 and April 12. During the period, the pound weakened and the price of Brent crude oil surged by more than 40%.
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