Stretched supply chains continue to drive up prices

1 December 2021

Severely stretched supply chains disrupted manufacturing production schedules and drove up input prices to the greatest extent in 30 years, according to the latest PMI.

Shortages of components and commodities, combined with input demand outstripping supply, led to a survey record increase in average purchase prices.

Around three-quarters of manufacturers reported a rise, compared to less than 1% seeing a fall. Cost and market pressures also affected selling prices, which rose at a rate close to October's survey record.

The strain on supply chains also substantially increased average vendor lead times.

The IHS Markit/CIPS UK Manufacturing Purchasing Managers’ Index rose to a three-month high of 58.1 in November, up from 57.8 in October and against the 50 no-change reading.

Companies reported that improved new work, especially from the domestic market, and efforts to build safety stocks supported increased output, which rose for the eleventh month in a row.

New business increased for the tenth month, underpinned by stronger UK market conditions, returning customers and rising client confidence.

However, exports dropped for the third month in a row, with reports of weaker demand from China, disruption to trade with the EU and the cancellation of some orders due to extended lead times.

Business optimism rose to a three-month high, linked to Covid recovery, economic growth, new product launches, planned marketing campaigns, business expansions, diversification, innovation, and reduced supply chain stress.

Duncan Brock, group director at CIPS, said most manufacturers felt conditions would improve.

“With more success in finding skilled labour they are preparing for supply chain issues to even out and for price rises to subside,” he said.

“Seventy four per cent of supply chain managers paid more for their goods in November, as prices charged also accelerated at a rapid pace, raising fears that the UK economy could over-inflate if supply chain disruption doesn’t subside in the first quarter of 2022.”

Rob Dobson, director at IHS Markit, said: “Although November saw rates of expansion in output and new orders gain some traction, growth remains lacklustre compared to the first half of the year. Manufacturers are facing a challenging backdrop, with rising supply chain disruptions, staff shortages and inflationary pressures stifling growth while ongoing difficulties caused by Brexit and logistical headaches restrict opportunities to expand into overseas markets.”

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