The UK manufacturing
upturn remained solid in July. Although
rates of expansion in output and new orders slowed, they remained among
the best in the survey history amid robust sales to both domestic and
export clients.
Scarcities remained a prime concern,
however, as stretched supply chains and staff shortages were constraints
preventing faster growth of output and employment.
The seasonally adjusted IHS
Markit/CIPS Purchasing Managers’
Index (PMI) posted 60.4 in July, down further from May's record high of 65.6. The PMI has signalled expansion
for 14 months. Growth slowed across the consumer, intermediate and
investment goods industries.
Manufacturing production rose for the
fourteenth consecutive month in July, as companies benefited from
increased new order intakes, rising client confidence and the re-opening
of the economy. New business inflows reflected stronger demand
from domestic and overseas markets. There were also reports of clients
bringing forward purchases to guard against supply-chain issues. That
said, rates of growth in both output and new work both eased to
four-month lows.
July saw a further increase in new export
business. The investment goods sector saw by far the steepest increase. Companies
reported improved demand from the US, the EU, China, Russia and the
Middle-East, although some noted that Brexit issues constrained exports
to the EU.
Scarcities, shortages and price rises remained
prominent challenges faced by UK manufacturers during July. Raw
material, staff and skill shortages were all major factors stymieing
output growth and contributing to a further marked increase in input
purchasing. Solid jobs growth continued, but the rate was insufficient
to prevent a further increase in backlogs.
Logistic delays caused
by stretched international supply chains
meanwhile led to a further marked lengthening of supplier lead times
during July. Raw material shortages, disruption caused by COVID-19 and
Brexit and capacity issues across the distribution network (including
delays at ports, freight and shipping services) also contributed to delivery
delays.
With demand outstripping supply, price
pressures continued to grow during July. Average input costs rose at a
near survey-record pace, with over 72% of manufacturers seeing an
increase.
A vast array of items increased in cost,
including chemicals, commodities, cardboard, electronics, food stuffs,
metals, packaging and timber products. The pass-through of higher input
costs led to a further substantial rise in output charges, which rose at
a near-identical pace to June's series-record. The outlook for the manufacturing
sector remained on the upside in July, with 63% of companies forecasting
output to rise over the coming year. Positive sentiment was linked to
improving market conditions and reduced uncertainty surrounding both the
post-Brexit and post-pandemic trading environment.
Commenting on the latest survey results, Rob
Dobson, Director at IHS Markit, said: “Although July saw UK
manufacturers report a further month of solid growth, scarcities of
inputs, transport and labour are stifling many businesses.
“On one hand, manufacturers are benefiting from
re-opening economies. This is leading to solid inflows of new work
from both domestic and overseas markets, including the US, the EU, China
and the Middle-East.
“On the other, the recent surge in global
manufacturing growth has led to another month of near-record supply chain
delays, exacerbated by factories and their customers building up safety
stocks. Some firms also noted that post-Brexit issues were still a constraint
on efforts to rebuild sales and manage supply and distribution channels
to the EU.
“Demand outstripping supply is also driving up
prices. Input costs again rose at a near survey-record pace, leading to
a near-record increase in manufacturers' selling prices. Amid growing
indications that many supply chain disruptions and raw material
shortages are unlikely to be fully resolved until 2022, the outlook
remains one of constrained growth combined with high inflation for the
foreseeable future.”
Duncan Brock, Group Director at the Chartered
Institute of Procurement & Supply: “Manufacturing
in July was once again unable to maintain the pace of output growth seen
earlier this year following the re-opening of the UK economy, as supply
gridlock resulted in a moderate deceleration in the rates of expansion
of production, new orders and job creation.
“A mismatch in
global recovery rates following the pandemic meant
some businesses abandoned their usual suppliers to seek new sources and avoid elevated lead times and the
shortages gripping the sector. Disruption is a worldwide problem
however, so there was likely to be limited success in re modelling
supply chains completely with the challenges too difficult to
circumnavigate.
“As more and more supply chain managers chased
fewer materials, three
quarters of manufacturing companies paid
higher prices as the weight of inflation bore down on an increasing
number of input items. Firms were also in stronger pursuit of skilled
labour as recruitment became more difficult with workers changing jobs,
isolating or hesitating to return.”
