Sunday, May 22, 2022

UK inflation index reaches record high as manufacturing businesses face growing pressures

The BDO Inflation Index has reached an all-time high as April saw a stark rise in commodity and energy prices, according to the latest Business Trends report from accountancy and business advisory firm BDO LLP.

The Inflation Index experienced the largest month-on-month increase in its ten-year history, jumping 4.29 points to 115.26. The last time the Index saw a jump comparable to this was in October 2016, with a monthly uptick of 3.93 points in the aftermath of the Brexit referendum. The index now sits well above 100 points, which denotes the average rate of growth.

April saw a sharp rise across both the Input and Consumer Inflation subindices, driven predominantly by skyrocketing prices for energy and commodities. This is fuelling considerable cost pressures for manufacturing businesses as the price of key materials and commodities continues to climb.

Elsewhere in the report, BDO’s Output Index fell 7.30 points to 103.66 in April. This fall took the Output Index to its lowest level since March 2021, driven by ongoing supply chain disruption and a decline in consumer spending as inflation soars.

The manufacturing sector has been particularly impacted by these constraints, leading to a drop of 1.93 points in the Manufacturing Output subindex, slipping below its long-term trend level to 98.14 following three consecutive months of decline.

As businesses face these economic headwinds, the labour market looks set to suffer. April saw the weakest month-on-month increase since September 2021, reflecting the slowing of jobs growth over the past month. This decline is expected to continue throughout 2022 as the unemployment rate is predicted to rise.

Commenting on the results, Kaley Crossthwaite, partner at BDO LLP, said: “Businesses are feeling the full force of rising costs, more of which will be passed onto customers in the coming months with consumer inflation set to intensify.

“The resulting squeeze on households’ disposable incomes is beginning to hurt our post pandemic economic recovery – and the very real risk of prolonged stagflation continues to haunt businesses and consumers across the country.”

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