Record manufacturing growth sparks inflation fears

Will Green is news editor of Supply Management
1 June 2021

Growth in UK manufacturing rocketed in May underpinned by record gains in new business, according to the latest PMI.

Eased pandemic restrictions and high levels of pent-up demand were behind the growth, with domestic and overseas orders reviving.

The IHS Markit/CIPS UK Manufacturing Purchasing Managers’ Index surged to 65.6 in May, up on 60.9 in April and above July 1994’s previous record high of 61. A reading of 50 means no change, while figures below or above signal contraction or expansion respectively.

The upswing has put pressure on capacity, with backlogs of work rising to the greatest extent in survey history.

Pressure built on suppliers, with delivery lead times lengthening to record degrees. This was linked to input shortages (especially electronics, plastics and metals), transport delays, and higher demand for raw materials.

Prices for inputs rose at the sharpest rate since the survey began in January 1992, with manufacturers in turn increasing selling prices.

May saw a record increase in purchasing activity, linked to rising production needs, build-up of safety stocks, and guarding against further price rises.

There was a record increase in staffing levels, while business optimism rose to its highest level since data on this was first collected in July 2012. More than 70% of firms forecast that production would be higher in a year’s time.

Duncan Brock, group director at CIPS, said: “The march of the makers has turned into a sprint as the blocks of lockdowns have been removed, but we haven’t seen this level of price inflation on materials for decades.

“Supply chain managers anticipate a continuing squeeze on deliveries and are forward buying and building stocks, so we may not have seen price peak yet.

“This means bigger inflationary pressures for the wider economy and the country’s place in international trade as prices charged also rose at record rates.”

Rob Dobson, director at IHS Markit, said: “Supplies of inputs into manufacturers and finished goods on to clients are both being severely disrupted by raw material shortages, port issues, Covid restrictions, post-Brexit difficulties and market forces as demand outstrips supply.

“Suppliers’ delivery times subsequently lengthened to one of the greatest extents on record, while input costs and selling prices both rose at unprecedented rates. With little sign of supply pressures receding, these price rises will become more visible to consumers.”

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