Manufacturers suffering worst shortages since the 1970s

25 October 2021

Ahead of the UK’s second annual budget, research by the CBI has found manufacturers are struggling with a degree of supply chain shortages not seen since the 1970s

A snapshot survey of 263 manufacturers found two-thirds said shortages of components would hit factory output within the next three months. 

Meanwhile two in five manufacturers polled said they were worried about a lack of skilled labour and how this would impact the ability to keep production lines running. Such sentiment has not been this high since July 1974.
 
The news comes on the back of the latest IHS Markit/CIPS UK Purchasing Managers' Index (PMI) which showed that while private sector businesses have enjoyed their fastest level of growth in three months, the UK manufacturing sector continues to suffer from supply chain issues.
 
It found the services sector posted a PMI score of 58, where anything above 50 is growth, compared to manufacturing production which was just 50.6. This represents the widest margin between the two figures since 2009.
 
It also reported that manufacturing saw its weakest output performance in eight months, with two-thirds claiming delivery times of raw materials had worsened in October. Only 1% said conditions had improved.
 
Chris Williamson, chief business economist at IHS Markit, said: “Although the UK economy picked up speed in October, expansion is looking increasingly dependent on the service sector, which in turn looks prone to a slowdown amid the recent rise in Covid-19 cases.”
 
CIPS group director Duncan Brock added that: “The big question is whether firms will be able to meet any ongoing demand as continuing global disruption to logistics feeds into the growing shortage of goods, and whether consumers tolerate rising prices.”
 
However, CBI deputy chief economist Anna Leach noted concern over the findings, given that costs-growth is predicted to speed up in the next three months.
 
She said: “From higher material costs to labour shortages, manufacturers continue to face a number of serious global supply challenges hampering their ability to meet strong demand. 


“With both orders and costs growth expected to climb over the next quarter, we’re not out of the woods yet.”
 
Leach called for the UK government to announce “bold action” in this week’s budget, including “reforming the outdated business rates system and frontloading investment into new industries”.


Chair of the CBI Manufacturing Council and group director at INEOS, Tom Crotty, reinforced this. 


He said: “The last quarter has undoubtedly been overshadowed by firms facing shortages of materials or components, struggling to fill roles, and grappling with increased energy cost pressures. It is essential that the government continues to work constructively with businesses to identify ways to alleviate this difficult situation.”
 
According to the CBI, average costs growth remained elevated in the quarter to October (+71%). Although it is at a broadly similar pace to July, cost growth is expected to speed up more next quarter, to +81%. It found average domestic and export prices grew at their fastest rate since April 1980 and April 2011, respectively.

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