Input costs jump to 8.3% as manufacturers head into the Budget

The numbers

Costs jumped in September

ONS reports that producer input prices rose 8.3% in the year to September, up from a revised 6.7% in August. Factory-gate prices rose 4.6%, up from a revised 3.8%. On the month, input prices rose 1.5% and output prices 0.8%. ONS links the increases mainly to oil-related products: crude oil input prices were up 51.0% on the year and 14.0% on the month, and refined petroleum outputs were up 63.3% on the year. ONS notes that the data continue to be affected by the conflict in the Middle East.

The gap between input and output inflation is 3.7 percentage points (8.3 minus 4.6), against 2.9 in August (6.7 minus 3.8) and 5.4 in May (9.2 minus 3.8). These gaps are our calculation. ONS does not measure margins, and output prices include business margins, so read the gap as a sign of pressure, not a measure of it.

Activity: growing, but unevenly

The final S&P Global UK Manufacturing PMI for September was 51.9, up from 51.7 in August and above 50.0 for an eleventh consecutive month. Output growth was the weakest of the current six-month expansion, although new orders rose for a tenth month. Performance was uneven: investment goods makers grew at the fastest rate since the end of 2017, consumer and intermediate goods makers contracted, and small manufacturers reported sharp falls in production and new business. Input price inflation accelerated for the first time in four months, at higher rates for SMEs than for large producers, and supplier delivery times lengthened by the most since June.

More recent flash data look firmer. PwC's commentary on S&P Global's October flash PMI, published on 23 October, reports manufacturing output growing at its fastest pace in over two years, alongside input price inflation at its highest since June. Treat this as provisional until the final October figure is released in early November.

A regional read

East Midlands Chamber's Q3 Quarterly Economic Survey, published on 22 September and drawing on more than 300 firms across all sectors rather than manufacturers alone, points to improving sentiment. Of the firms surveyed, 72% reported operating below capacity, 60% reported difficulty finding suitable staff, and 40% anticipated raising prices over the next three months, which the Chamber reports as down 6% from Q2. Inflation remained the top concern.

What this means for procurement and operations

1. Check price mechanisms. Review which supplier contracts allow indexed or ad hoc increases in energy, chemicals, electronics and diesel-linked transport.
2. Reset lead-time assumptions. With supplier delivery times lengthening, update reorder points to current lead times and review safety stock on the items that matter most to service.
3. Plan supplier conversations around the Budget. S&P Global's economist expects the 28 October Budget to be material for manufacturers' confidence, so be ready to revisit fixed-term prices and volume commitments once its measures are known.

What to watch