Factories costs see biggest surge for 30 years as Iran war stokes fears of recession
Factories have been rocked by the biggest increase in production costs since Black Wednesday more than 30 years ago as the Iran war stokes fears of recession.
As a top Bank of England official warned the ‘fog of uncertainty’ should not stop it putting up interest rates, S&P Global said the rise in oil and gas prices has led to input prices paid by manufacturers rising at the sharpest rate since October 1992.
That was the month after Black Wednesday when Britain crashed out of the European exchange rate mechanism – sending sterling tumbling and pushing up prices for UK firms.
The report showed the economy growing at the slowest pace for six months in March as conflict in the Middle East sends prices soaring and slams the brakes on economic activity.
Factory costs: S&P Global said the rise in oil and gas prices has led to ‘input prices’ paid by manufacturers rising at the sharpest rate since October 1992
The update came as:
- The CBI said retail sales are falling at the fastest rate since April 2020 when Covid lockdowns closed all-but essential stores
- Morgan Stanley warned of ‘a pronounced UK recession at the turn of the year’ if energy prices stay at recent highs and borrowing costs rise
- The oil price rose as high as $105 a barrel having dropped to $96 on Monday;
- The Government sold £2.25billion of ten-year bonds at an average yield of 4.91 per cent – the highest since 2008
- Bellway sounded the alarm over rising building costs and higher mortgage rates as Nationwide, Halifax and HSBC became the latest lenders to put up the price of home loans.
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But while the crisis is stoking recession fears, Bank of England chief economist Huw Pill warned interest rates may still have to rise to keep a lid on inflation.
Arguing a ‘robust’ response was required, he said: ‘I stand ready to act – if necessary – to contain the lasting components of any new inflationary pressures.
The fog of uncertainty in which we always operate cannot be an excuse for inaction. Uncertainty is always present, but the task of monetary policy makers is to provide clarity on their pursuit of the price stability objective in that uncertain world.’
S&P Global said its index of private sector activity in the UK – a measure of how the economy is faring with scores above 50 showing growth and those below signalling contraction – fell to a six-month low of 51 this month from 53.7 in February.
Chris Williamson, chief business economist at S&P Global, said: ‘The war in the Middle East has hit the UK economy in March, stalling growth while driving inflation sharply higher.’
S&P Global also reported a slowdown in the eurozone as it too is battered by rising prices, with the index of activity in the single currency bloc dropping to a ten-month low of 50.5.
‘The eurozone and UK economies face a near-term bout of stagflation, characterised by a spike in energy-driven prices alongside a stalling of the economy,’ said Williamson.
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