UK manufacturing growth reaches decade high

6 April 2021

The UK manufacturing sector reached its highest growth levels in a decade, despite supply chain constraints.

The IHS Markit/CIPS Purchasing Managers’ Index (PMI) jumped to 58.9 in March, up from 55.1 in February, recording a tenth successive month of growth.

Manufacturing production output was spurred on by orders from strong domestic and overseas markets, greater employment, increased supplier lead times, and slower decrease in stocks of purchases. The vaccine roll-out and anticipated reduced business restrictions also helped boost output levels.

Rob Dobson, director at IHS Markit, said: “The domestic market remained the prime source of new orders, as companies reported that the vaccine roll-out and clients’ preparations for the loosening of lockdown restrictions underpinned the expansion. However, the extent to which supply chains have worsened through much of the past year has been unsurpassed during the near three-decade survey history.

“Demand outstripping supply to such a wide extent is meanwhile driving up prices, with rates of inflation in input costs and selling prices both accelerating to near-record highs. The longer these inflationary and supply chain worries persist, the greater the potential to curb the strength of the upturn as the economy unlocks in the coming weeks and months.”

Survey respondents also highlighted accelerated growth in both the intermediate and investment goods industries, while consumer goods production showed signs of recovery.

Exports grew at the fastest rate in the year so far, with improved demand from Europe, Asia and the US. The rebound in the sector and global economy has contributed to the highest level of business optimism in seven years.

According to the survey, almost two-thirds of manufacturers expect output to rise over the coming year, with only 6% expecting a contraction. Jobs growth was also at a seven-year high, supported by the sharpest rise in backlogs of work for 11 years.

However, suppliers have been affected by disruptions to raw material deliveries, production and distribution schedules. Lead times lengthened to the second-greatest extent in survey history due to Covid-19 restrictions, low stocks, port disruption, shipping delays, post-Brexit issues and raw material shortages. 

Duncan Brock, group director at CIPS, said: “Manufacturers picked up the pace to meet new orders rising at the fastest levels for three years with the domestic pipeline of work strengthening and previously deflated export orders bouncing back across the board, including from the EU. In turn, suppliers were under the cosh to keep up as the list of shortages in raw materials increased leading to the second-greatest lengthening of delivery times in the history of the survey.

“All in all, a great end to the first quarter where some businesses recovered losses from last year but the reality of continued supply chain disruption as a result of Covid, Brexit and now the Suez delays could potentially rein back some of the gains in April.”

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