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

09 May 2022

  • BDO’s Inflation Index reached an all-time high in April driven by record input price rises, while output fell to its lowest level in more than a year
  • Manufacturing businesses have been particularly impacted because of increasing commodity prices and ongoing supply chain disruption 
  • BDO’s Employment Index 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 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.”

ENDS

 

Overview of the BDO indices:

An overview of all four indices is provided in the table below, detailing figures for the last three months and the same month of the previous year, to allow for comparison. 100 = average value. Above 95 = positive.

 

 

April 2022

(Figures for this report)

 

March 2022

 

February 2022

 

April 2021

BDO Optimism Index

106.75

107.49

105.81

99.85

BDO Output Index

103.66

110.96

116.94

153.23

BDO Inflation Index

115.26

110.97

109.66

101.28

BDO Employment Index

113.00

112.74

110.75

105.15

 

Note to editors

Accountancy and business advisory firm BDO LLP provides integrated advice and solutions to help businesses navigate a changing world.

Our clients are Britain’s economic engine – ambitious, entrepreneurially-spirited and high-growth businesses that fuel the economy. 

We share our clients’ ambitions and their entrepreneurial mind-set. We have the right combination of global reach, integrity and expertise to help them succeed. 

BDO LLP

BDO LLP operates in 18 offices across the UK, employing 6,000 people offering tax, audit and assurance, and a range of advisory services. BDO LLP is the UK member firm of the BDO international network.

BDO’s global network

The BDO global network provides business advisory services in 167 countries, with 97,000 people working out of 1,728 offices worldwide. It has revenues of $11.8bn. 

Methodological Notes

The BDO Monthly Business Trends Indices are prepared on behalf of BDO LLP by the Centre for Economics and Business Research ltd., a leading independent economics consultancy. Cebr has particular strengths in all forms of macroeconomic and market forecasting for the UK and European economies and in the use of business survey techniques.

The indices are calculated by taking a weighted average of the results of the UK’s main business surveys. It incorporates the results of the quarterly CBI Industrial Trends Survey (and the CBI Monthly Trends Enquiry which is carried out in the intervening months); the Bank of England Agents’ summary of business conditions; and the Markit/CIPS Manufacturing and Services PMI data.

Taken together the surveys cover over 4,000 different respondents from companies employing approximately five million employees. The respondents cover a range of different industries and a range of different business functions. Together they make up the most representative measure of business trends available.

The surveys are weighted together by a three-stage process. First, the results of each individual survey are correlated against the relevant economic cycles for manufacturing and services. This determines the extent of the correlations between each set of survey results and the relevant timing relationships. Then the surveys are weighted together based on their scaling, on the extent of these correlations and the timing of their relationships with the relevant reference cycles.

Finally, the weighted total is scaled into an index with 100 as the mean, the average of the past two cyclical peaks as 110 and the average of the past two cyclical troughs as 90.

The results can not only be used as indicators of turning points in the economy but also, because of their method of construction, be seen as leading indicators of the rates of inflation and growth.

Contacts

Tom Grant
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