Factory supply chains at risk of 'disintegrating'

2 March 2020

The UK manufacturing sector grew at its fastest rate since April 2019 last month, but analysts warn coronavirus is ‘disintegrating’ supply chains.

The latest IHS Markit/CIPS UK Manufacturing Purchasing Managers’ Index (PMI) showed an index outwardly back on track – with Brexit uncertainty giving way to strengthening domestic demand. The index hit 51.7 for February, up on 50.0 in January. The rise marks the first time in 10 months the index has been above the 50.0 ‘neutral’ rating.

But there are significant fears this headline growth hides bubbling supply chain disruption caused by coronavirus. 

The data notes “sizeable raw material delivery delays, rising input costs and increased pressure on stocks of purchases,” while overseas demand has decreased for the fourth month running. It finds organisations are reporting reduced new business from Asia (and China particularly), due to the Covid-19 outbreak. 

Rob Dobson, director at IHS Markit said: “While there’s returning business confidence, the upturn we’re seeing remains confined to the consumer and intermediate goods sectors, and supply-chain disruptions are emerging rapidly.”

According to the index delivery delays have now seen vendor lead times lengthen to their longest since July 2018. It has led to an eight-point drop in the level of the seasonally adjusted Suppliers' Delivery Times Index – the largest in the survey’s 28-year history. 

Dobson added: “With supply chain headwinds rising, and trade negotiations with the EU starting, it remains to be seen whether the recovery can stay on course during the coming months.”

Although recent storms and flooding in the UK have had some impact on the data, Duncan Brock, group director at CIPS, said international events were now overtaking things. He gave a far less upbeat assessment about how the rest of the year could pan out. 

He said: “With no clear end to the disruption in sight, the gains made by manufacturing at the beginning of the year could soon be lost. A vortex of poor UK weather conditions, underlying remaining Brexit fears and now the coronavirus will strip the sector of any significant wins if supply chains continue to disintegrate in the coming months.”

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