CIPS News


UK manufacturing sees input costs and selling prices rise at record rates in June

CIPS 1 July 2021

The building up of buffer stocks meant that raw material inventories rose at the quickest pace during the year-so-far and to one of the greatest extents in the survey history.

IHS Markit / CIPS UK Manufacturing PMI®

- UK Manufacturing PMI at 63.9 in June

- Supply-chain stresses lead to record price increases

- Robust growth of output, new orders and employment continues

Data collected 11-25 June 2021

Manufacturing remained in a strong growth phase in June, with rates of expansion in output, new orders and employment among the best seen during the near 30-year survey history. Industry was still beset by supply-chain and distribution difficulties, however, leading to longer vendor lead times and disruption to production schedules.

The seasonally adjusted IHS Markit/CIPS Purchasing Managers’ Index® (PMI®) dipped slightly to 63.9 in June, down from May's record high of 65.6. The PMI has signalled an improvement for 13 successive months.

Manufacturing production increased at marked rates across the consumer, intermediate and investment goods industries during June. Growth was supported by strong intakes of new business, which rose at a rate close to May's record high.

Improved demand was linked to the ongoing easing of COVID-19 restrictions, re-opening of the economy from lockdown and improving global market conditions. New export orders increased again, reflecting inflows of new work from mainland Europe, the US and Asia.

The strong upswing in global market conditions combined with constraints introduced to combat the COVID-19 pandemic continued to result in considerable supply-chain and price inflationary pressures in June.

Average input costs rose at the fastest pace in the survey history, with over three-quarters (77%) of manufacturers reporting an increase. A wide range of raw materials were up in price, including chemicals, electronics, energy, food products, metals, plastics and timber. Cost pressures were exacerbated by demand outstripping supply, logistic delays and raw material shortages.

The pass-through of higher input costs led to the fastest increase in selling prices since charges data were first collected in November 1999. Record increases were seen at consumer, intermediate and investment goods producers.

Vendor lead times meanwhile lengthened to an extent only surpassed by that seen during the first COVID-19 lockdown in April 2020. Part of the lengthening reflected increased demand for raw materials, as purchasing activity rose at a rate close to May's record high. Companies linked increased input buying to rising demand and efforts to protect against supply-chain delays and input shortages.

The building up of buffer stocks meant that raw material inventories rose at the quickest pace during the year-so-far and to one of the greatest extents in the survey history. Stocks of finished goods declined sharply as manufacturers settled sales from inventories due to the disruption to production schedules caused by supply-chain delays.

Employment rose at a rate close to May's record high during June. Jobs growth reflected capacity issues – highlighted by near-record accumulation of work backlogs – and optimism among manufacturers. Almost 63% of companies expect production to rise over the coming year, reflecting reduced uncertainty regarding COVID-19 and Brexit and improving global market conditions.

Commenting on the latest survey results, Rob Dobson, Director at IHS Markit, said: “UK manufacturing maintained a near survey-record pace of expansion at the end of the second quarter, as the reopening of economies at home and overseas supported increased production, new orders and employment. Solid business confidence and rising backlogs of work also suggest that the current upturn has further to run.

“The sector is still beset by rising cost inflationary pressures, however, as Brexit-related trade issues exacerbated global supply chain delays. The resulting widespread raw material shortages drove purchase prices up to the greatest extent on record, leading to an unprecedented steep rise in selling prices. There are also widespread reports of supply issues causing disruptions to production schedules and impeding the re-building of buffer stocks.

"The continued inflationary impact of capacity issues at both manufacturers and their suppliers will be a further factor keeping headline inflation above the Bank of England's 2% target in coming months.”

Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply: “As global markets opened up still further in June, the manufacturing sector continued to enjoy a swell of new orders from home and abroad with work coming in from Asia, the US and Europe. Overall productivity however, showed some signs of slowing compared to the previous month as snarled supply chains were in danger of seizing up and operating capacity tightened.

“Supply chain managers worked around the clock to source ever-dwindling resources of raw materials, and building stock, resulting in supplier delivery times worsening again. The glut of purchases served only to exacerbate the shortages in transport and staff along with materials such as food and timber.

“Even a solid six-month run of job creation was not enough to build the capacity needed to meet demand as businesses resorted to temporary and less skilled labour to try and keep up. This is also driving up operating costs at the fastest rate in 30 years, with prices to customers rising at the highest rate since at least 1999. It’s anyone’s bet whether these cost burdens will continue past the summer but with optimism still high, manufacturers are powering through even with ongoing problems such as Brexit costs and challenges in trade as a better situation than they were in last year.”

Trudy Salandiak

Corporate Communications

CIPS T: +44-1780-761576 trudy.salandiak@cips.org

Page Loading
Page Loading
Page Loading
Page Loading

Searching...

This may take up to 30 seconds