Supply chain issues constrain manufacturing growth

1 September 2021

Increasing supply chain constraints led to slower production growth and rising input prices for UK manufacturers in August, according to the latest PMI.

The IHS Markit/CIPS UK Manufacturing Purchasing Managers’ Index showed rising supply chain issues created shortages of inputs, and delivery delays disrupted production schedules, leading to slower output growth for UK manufacturers during the month. These factors also resulted in a marked increase in input prices.

The index fell to a five-month low of 60.3, just below July’s 60.4 but above the long-run average of 51.9. A reading of 50 signals neither contraction nor expansion.

However, manufacturing output rose again in August, albeit to the weakest level since February.

Companies linked this to new order gains and the re-opening of global economies.

New business orders also rose in August from both domestic and overseas markets. Exporting manufacturers reported increased orders from clients in Europe, China, the US, Asia and South America.

The outlook for the UK manufacturing sector remained bright in August, according to the data. Almost two-thirds of companies said they expected output to rise over the coming year, compared to only 4% forecasting a decline.

Business confidence rose to a three-month high, based on expectations of continued economic revival, stronger global demand, investment plans and hopes that current supply issues would either lessen or be fully resolved.

The increased confidence resulted in further job creation during August. Employment rose for the eighth month in a row, to increase capacity, meet rising demand requirements and start addressing backlogs. However, some manufacturers also reported labour and skills shortages.

Average purchase prices rose at the fourth-fastest rate in the survey history, with prices up for a wide range of items, as shortages and delivery issues created reduced supply while demand was rising.

Rob Dobson, director at IHS Markit, said: “A wide range of factors contributed to the disruption, including port capacity issues, international shipping delays, the re-imposition of Covid restrictions at some key points in global supply networks and ongoing issues post-Brexit,” he said. “With all of these factors likely to persist for the foreseeable future, manufacturing could well see a further growth slowdown in the coming months.”

Dobson added almost record highs for input costs and selling prices were especially affecting the auto, metal, food and electronics markets.

Duncan Brock, group director at CIPS, said the figures showed signs of stagnation in the sector.

“There is a question mark over whether supply chain managers have ordered early enough to fulfil customer needs as the continuing deterioration in supplier performance, close to last year’s pandemic lows, could result in meagre offerings on shelves in the shops in the coming months,” he said.

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