Prices across Britain’s manufacturing sector have increased at their fastest rate in three decades, closely-watched figures show.
Disruption to supply chains remains a major issue across the sector, with orders from China and worldwide export levels slipping, IHS Markit/CIPS UK said in its latest UK manufacturing purchasing managers’ index.
Supply chain strains have led to shortages of the components that many manufacturers need to make their products, resulting in the cost of these components and raw materials going up.
Going up: Prices across Britain’s manufacturing sector have increased at their fastest rate in three decades, IHS Markit/CIPS said
But growth in the UK’s manufacturing sector still sped up for the second month in a row in November, despite squeezed supply chains.
IHS Markit director Rob Dobson said: ‘Although November saw rates of expansion in output and new orders gain some traction, growth remains lacklustre compared to the first half of the year.
‘Manufacturers are facing a challenging backdrop, with rising supply chain disruptions, staff shortages and inflationary pressures stifling growth while ongoing difficulties caused by Brexit and logistical headaches restrict opportunities to expand into overseas markets.’
Data: Activity in the UK’s manufacturing sector rose last month, but pressures remain
He added: ‘The current mix of supply-side constraints, cost increases, skill shortages and rising demand for labour will add to the expectations of an imminent rate increase by the central bank, but the survey highlights how the subdued rate of manufacturing growth and export decline leaves industry in a vulnerable position to any new headwinds, not least the Omicron variant.’
The survey of manufacturers found manufacturing firms in Britain revved up their output for the eighteenth consecutive month in November.
However, while the sector has been growing for months, the rate of expansion has been hampered.
It was only in October the sector started to reverse a five-month growth slowdown, something that continued last month.
The latest UK manufacturing PMI reading for November came in at 58.1, against 57.8 in October and 57.1 in September. This remains lower than the 60.3 score seen in August. Anything above 50 signals growth.
Around three-quarters of the survey’s respondents said that prices had risen while fewer than one in a hundred reported a drop.
Duncan Brock, group director at the CIPS, said: ‘New orders flows exacerbated the problem in manufacturing capacity with the fastest intake for three months, and it was the domestic market that made up the majority of the new work.’
‘Export orders dropped back again as long lead times, port and shipping difficulties caused some clients to lose patience and opt to source elsewhere.’
Sub-sectors: A chart showing output in different elements of the UK’s manufacturing sector
Martin Beck, chief economic adviser to the EY Item Club, said: ‘There was no sign of supply-chain issues abating. And higher fuel, energy and raw material prices, alongside input demand outstripping supply, contributed to cost pressures rising at the fastest rate in the survey’s 30-year history.
‘The new Omicron Covid-19 variant will bear on these factors. New restrictions in the UK and abroad may add to supply chain disruption in the short term and hold back the pace at which bottlenecks are resolved.
‘But positively for manufacturers, tighter restrictions could slow the rotation of consumer spending from goods back to services, albeit a development which would intensify supply pressures.
‘Additionally, oil prices have fallen more than 10 per cent since Omicron’s discovery was announced, which will reduce costs for energy-intensive producers. So, while it’s still too early to be conclusive on the economic effects of the new variant, the consequences for the manufacturing sector may not be all negative.’
This week, Made UK warned that Britain’s manufacturers are facing a ‘perfect storm’ crisis of soaring costs and spiraling debts that many fear could push them over the brink.
Fluctuations: A chart showing manufacturing output and production levels over time
The leading industry trade body urged the Government to introduce payment holidays on loans, warning that thousands of firms faced a ‘tipping point’ that could make their business models unviable.
Make UK said the UK’s manufacturing sector faced an ‘unprecedented combination of a post-Covid credit, cash and costs crunch’.
It said factories were struggling with the burden of repaying debts stacked up to get them through the pandemic as well as grappling with a raft of other challenges from supply chain disruption to shortages of HGV drivers and energy costs.
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