Manufacturing companies are finding it easier to raise prices than at any time in more than a decade. The increases are resulting in weaker export demand and explain the Bank of England’s concern over inflation and the rises in UK interest rates.

The industrial trends survey conducted by the Confederation of British Industry in May 2007 found 32 per cent of manufacturers expect average domestic prices to rise over the following three months. Just 8 per cent expected a fall. That 25-point balance between expectations of rises and falls was the highest since early 1995.

Prices of intermediate goods such as timber and chemicals and consumer goods are most likely to rise, according to the survey which has been conducted regularly for almost 50 years. The balance of capital goods manufacturers expecting price increases was low at 9 per cent, but still positive.  
   
Output expectations remain high, with 32 per cent of firms expecting increased orders against 26 per cent saying they will be below normal levels, but export demand has weakened with 28 per cent of companies saying they are below normal levels while just 19 per cent said they are higher.

The CBI’s chief economic adviser, Ian McCafferty, said: “In spite of the slight weakening in export orders the manufacturing sector continues to go from strength to strength with healthy order books, solid output growth and continued ability to put up prices, reversing the squeeze in profit margins of 2006. However we have not yet seen the impact of the recent rises in interest rates on domestic demand.”

With import prices from areas such as China rising, the Bank continues to worry that inflation will exceed target and is widely forecast to be planning further interest rate increases that will keep sterling high, thus making exports harder.

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