Manufacturers in the South East have continued to raise the prices of their goods, in the face of the fiercest cost increases since 1980, according to the CBI.

The latest Industrial Trends survey, which celebrates its 50th anniversary this week, reveals that persistently high costs coupled with firms’ expectations of slowing demand have led to a widespread drop in business confidence.

Director of CBI South East Malcolm Hyde said: “Cost pressures on manufacturers have been noticeable for over four years but in the last three months they have been their most intense for nearly three decades.

“So, it comes as little surprise that manufacturers are passing some of these higher costs onto customers, although this is unlikely to rescue profits from a margin squeeze.

“The record oil price peaks in the last three months have pushed down further on business confidence and lowered firms’ expectations for demand in the coming quarter. Even exports, which so far have helped bolster manufacturers’ order books, are expected to soften despite the boost to competitiveness from weaker sterling.”

In the last three months, average unit costs rose for 65 per cent of manufacturers while they fell for just 7 per cent. The resulting balance – where a balance is the difference between the percentage of manufacturers reporting an increase and those reporting a decrease – of +58, the highest since October 1980 (+58), comes on the back of soaring oil prices, up by over a third in the last quarter alone. Firms expect costs to increase at a similar rate in the next three months.

As a result, firms have attempted to offset some of the damage to their profit margins by raising prices. For two quarters in a row, domestic prices have risen markedly (a balance of +21 recorded in April and +27 this survey period) while export prices have also gone up at an accelerated rate (+12 and +19). This quarter’s figures are the highest since April 1995, and firms expect prices to increase over the next three months at the highest rate since January 1990 for domestic prices, and January 1995 for export prices.

Firms’ mood about the business situation darkened considerably for the fourth quarter in a row, but this time sentiment has taken an even greater dive – the balance of -40 is the weakest since October 2001 (-54).

In the monthly question asked about manufacturers’ total order book levels, a balance of 8 per cent of firms considered they were below normal in July – a return to the negative perceptions recorded in April and May but still considerably above the long term average (-15).

However expectations for manufacturing activity are less positive for the coming quarter, with the weakest balances for expected output (-7), domestic orders (-21) and export orders (-8) recorded for at least five years.