Manufacturing growth stunted by ‘strained supply chains’

1 March 2021

Supply chain disruption as a result of Brexit and Covid has subdued growth in the manufacturing sector, according to the latest PMI.

The IHS Markit/CIPS UK Manufacturing Purchasing Managers’ Index rose to 55.1 in February, up from 54.1 in January, signalling the ninth consecutive month of growth.

New orders expanded with improved demand domestically and in several overseas markets, such as the US, Asia, Scandinavia and mainland Europe.

However, the ongoing impact of Covid, Brexit complications, and shipping difficulties constrained export order growth.

Business optimism rose to a 77-month high in February, with almost two-thirds (63%) of firms expecting output to be higher in one year's time. The largely positive outlook was linked to continued recovery from the pandemic, reopening of the global economy, and reduced Brexit uncertainties.

Backlogs of work increased for the fourth month running. The combination of rising output, new orders and improved sentiment encouraged further job creation.

Input cost inflation accelerated for the tenth straight month in February to its highest rate for over four years. As a result, output prices rose at the fastest pace since January 2018.

The main drivers of rising costs were supply chain disruption and raw material shortages. Average vendor lead times lengthened to one of the greatest extents in the almost 30-year survey history. Over 64% of firms reported higher purchase prices, while nearly 59% saw supplier delivery delays.

Duncan Brock, group director at the CIPS, said: “Only the pincer movement of rising costs and supply chain disruptions in the manufacturing sector prevented higher growth in February as mounting optimism amongst manufacturers raised hopes of an imminent future recovery.

"Stronger pipelines of work from home and overseas impacted strained supply chains with delivery times rocketing to some of the highest levels since records began. This disorder was primarily created by shipping delays, transportation shortages and customs border commotion. Though it was difficult to see clearly where Covid disruption ended and the Brexit muddle began as businesses on both sides of the Channel struggled with additional administrative burdens.

"Where some companies delayed trade across the UK/ EU borders, others were determined to press on, leading to the highest rise in input prices since January 2017. Manufacturers were trying to source increasingly scarce raw materials as their pre-Brexit stocks unravelled at the quickest pace since September 2009.”

Rob Dobson, director at IHS Markit, said: “With current constraints likely to continue for the foreseeable future, pressure on prices and output volumes may remain a feature during the coming months. That said, improved domestic demand as lockdown restrictions ease and a further rise in manufacturers' optimism are reasons to hope brighter times are on the horizon, and have already supported a modest rebound in staffing levels since the turn of the year.”

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