Cost inflation for UK firms jumps to three-year high amid Iran war

British firms have seen cost inflation jump to its highest level for more than three years following the impact of the conflict in the Middle East, according to new figures.

An influential survey also found that private sector growth rebounded this month as firms sought to build up stocks of products amid concerns over potential shortages and future price hikes.

The S&P Global flash UK composite purchasing managers’ index (PMI), which is watched closely by economists, recorded a reading of 52.0 for the month, increasing from 50.3 for March.

Activity was in growth territory, which is signified by any score above the 50.0 threshold.

It was stronger than expected, with analysts having predicted a 49.8 reading for the month.

The stronger performance in April was boosted by a return to growth for the UK’s manufacturing sector as customers brought orders forward.

Firms did however report some raw material shortages and highlighted that shipping disruptions also weighed on produced volumes.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said: “The UK economy has gathered some renewed momentum in April after the initial impact of the war in the Middle East caused growth to stall in March, but the upturn comes with a catch.

“The improved rate of expansion is in part a reflection of a short-term boost from a rush to secure purchases ahead of feared price rises and supply shortages linked to the war.

“Prices have spiked higher at a rate not previously seen by the survey outside of the pandemic, suggesting inflation could rise more than many forecasters have been anticipating.”

The research showed the fastest rise in average cost burdens for firms since November 2022.

Manufacturers highlighted a “particularly steep increase” in their input prices due to higher raw material and transport costs.

Around 69% of surveyed firms reported a rise in their purchasing costs for the month.

Inflation also picked up sharply for the services sector, with the largest month-on-month rise in prices since the survey began almost 30 years ago.

Thomas Pugh, chief economist at RSM UK, said: “The surprisingly strong flash composite PMI for April suggests the economy is holding up at the start of the Iran war.

“Admittedly, that resilience is partly due to activity being brought forward ahead of price rises and is unlikely to last if the Strait of Hormuz remains closed and energy prices go higher.”