UK manufacturers suffer as costs increase - CBI

British factory order books deteriorated at their fastest rate in one and a half years in April and soaring oil prices pushed up costs at their most rapid pace in 10 years, an industry survey showed yesterday.

The Confederation of British Industry said its monthly manufacturing order books balance fell to -24 in April from the -13 expected by analysts which was also the figure for March. And output in the last three months fell for the first time in six quarters.

Government bonds and interest rate futures immediately shot up as dealers in the financial markets pared expectations of further hikes in borrowing costs.

"The Bank of England must continue to ensure that inflationary pressures remain under control but they must also avoid a premature rise in interest rates," said Digby Jones, CBI director general.

Still, the CBI said price pressures intensified across all major sectors as manufacturers faced a surge in crude oil prices which averaged 30.5 per cent more in the April survey than at the start of the year.

The cost of other raw materials was also much higher, the CBI said.

Analysts said that sooner or later the central bank may have to react to these inflationary pressures and push interest rates up beyond their current 4.75 per cent.

"Though the news will add weight to the view that rates won't go up in the near-term, building inflationary pressures will force the Bank to act, despite the fact that it will cause further pain for manufacturers," said Gavin Redknap, economist at Standard Chartered.

Separately, the CBI said its quarterly business situation balance rose to -15 in April from a two-year low of -22 reported in January.