UK private sector firms face a looming supply chain crunch as manufacturing output slows as the rising costs of raw materials hits producers.
Despite this, figures from the Confederation of British Industry (CBI) showed private sector activity grew at an above-average rate in the quarter to April to 19% from 18% in the three months to March.
CBI's Growth Indicator found 95% of manufacturers cited raw material prices as an important factor behind expected cost growth in the next quarter, compared to 70% for energy prices and 76% for labour costs, while 71% cited transport and logistics costs. Growth in manufacturing output slowed to 19% from 27%.
Economists have warned that the private sector could face challenges in the "near-term" and expect this to weigh on the outlook for the UK economy this year.
"While private sector growth seems resilient so far, near-term challenges are growing," said Alpesh Paleja, lead economist at CBI. "Strong inflationary pressure is hurting businesses through higher costs, and is leading to an acute cost of living crunch for households.
The CBI said activity in consumer services stabilised to 3% last month, from a -23% fall in the quarter to March. Business & professional services activity (+22% from +25%) and distribution sales (+25% from +27%) also continued to expand in the quarter to April.
Looking ahead, private sector activity is expected to grow at a similar pace in the next three months to 22%.
Consumer services is expected to expand to 9% and business & professional services firms anticipate growth to pick up further to 33%. Manufacturers expect a similar pace of growth (17%), while distribution firms anticipate growth to slow (11%).
Paleja added: "While the chancellor announced support for low-income households in his Spring Statement, this should be kept under review in light of febrile pressures on living standards.
"To combat rising cost pressures, firms may also require further support prior to the Autumn Budget."
A separate analysis suggests nearly six in 10 businesses plan on hiking prices in the coming 12 months.
According to the Lloyds (LLOY.L) Bank Business Barometer 58% of businesses anticipated higher prices for their products or services in response to ongoing inflationary pressures.