Article:

Business Trends

09 May 2022

UK inflation index at record high as manufacturing faces growing pressure

  • BDO’s Inflation Index reached an all-time high in April
  • Rising commodity prices and supply chain disruption hit manufacturing
  • Employment Index growth slows  has also suffered as employers tackle worsening economic headwinds, seeing its slowest growth since September 2021

The BDO Inflation Index has reached an all-time high with a stark rise in commodity and energy prices, according to the latest Business Trends report. The Inflation Index experienced the largest month-on-month increase in its ten-year history, jumping 4.29 points to 115.26.

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.

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.

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.”

Download April 2022 report

The chart below shows a sample of recent data from the Business Trends report. Any scores below 95 represent a contraction or a negative growth rate.

What is Business Trends?

The Business Trends report is one of the key monthly indicators of the performance of the UK economy, and provides an accurate and up-to-date picture of the environment that businesses are facing.

Business Trends covers more than 4,000 respondents from companies employing approximately five million employees across the UK. The report includes separate indices for services and manufacturing sector optimism and output, as well as indicators for UK inflation and employment.

Since 1992, the BDO Business Trends report has provided the most representative monthly measure of business output and optimism available. The results can be used as indicators of turning points in the economy as well as, because of their method of construction, leading indicators of the rates of inflation and growth.

See a sample Business Trends report

How is Business Trends prepared?

Indices are prepared on behalf of BDO LLP by the Centre for Economics and Business Research (CEBR), a leading independent economics consultancy.

Survey's contributing to Business Trends

Four indices covering output, optimism, inflation and employment, are calculated by taking a weighted average of the results of the UK's main business surveys, including:       

  • CBI Industrial Trends Survey
  • CBI Monthly Trends Enquiry
  • Bank of England Agents' summary of business conditions
  • Markit/CIPS Manufacturing and Services PMI data    

Taken together, these surveys cover more than 4,000 different respondents from companies employing approximately five million people in the UK. Collectively, they comprise the most representative measure of economic indicators and business confidence available. The respondents cover a range of different industries and business functions to deliver a comprehensive picture of the general economic outlook.