Severe shortages clamp down on UK manufacturing growth

Severe shortages of raw materials and workers and transport delays have compounded to clamp down on growth in the UK manufacturing industry, according to a closely watched survey published today.

The latest IHS Markit / CIPS purchasing managers’ index edged down to 60.3 in August, a five-month low, dropping from July’s reading of 60.4.

Despite pulling back over the last month, the latest edition of the PMI shows the UK manufacturing industry has expanded for 15 successive months. A reading above 50 indicates a majority of businesses reported an expansion in business activity.

Scarcity of raw materials due to supply chains buckling under the weight of a resurgence in global demand as economies across the world reopen left manufacturers struggling to scale supply quickly enough to cope with red hot demand.

A lack of available workers and intense skills shortages also served to curb manufacturers’ output. Labour availability was knocked by the NHS Covid-19 app and Track and Trace officials ordering workers to self-isolate in August.

Low levels of labour supply has also been partly driven by concerns roles may not be viable in the long term, prompting some workers to stay on furlough.

Meanwhile, a shortage of HGV drivers triggered by stricter immigration rules after the end of Brexit transition period and high levels of EU nationals leaving the UK since the onset of the pandemic has resulted in logistics firms struggling to fulfill delivery orders.

Rob Dobson, director at IHS Markit, said: “Severe disruptions to supply chains and raw material shortages eroded the growth momentum of UK manufacturing in August.”

“Although solid gains in output and new orders were achieved, companies reported that production, delivery and distribution schedules were experiencing substantial delays.”

Increased demand from manufacturers attempting to replenish stock levels in case of future Covid prevention measures has intensified pressure on suppliers of raw materials to scale production.

“Average supplier lead times lengthened to the second greatest extent in the survey history during August,” IHS Markit said. There was also a marked increase in input prices, potentially prompting businesses to hold off on fulfilling orders until prices have pulled back.

Latest official data from the Office for National Statistics shows CPI inflation in the UK is currently running at two per cent annually. However, higher input costs suggest manufacturers may ramp up the rate of price hikes for customers to protect their margins.

IHS Markit said new order growth remained strong, driven by improving confidence in the trajectory of the global economy, while exports rose on increased demand from US, EU and Chinese businesses.

Martin Beck, chief economic advisor to the EY ITEM CLUB, said: “The details of the IHS Markit / CIPS survey suggested the reason for weaker growth lay with supply rather than demand.”

“New orders continued to grow strongly, but shortages of materials and staff and delivery delays meant manufacturers struggled to satisfy orders.”

Separate data released by IHS Markit today showed manufacturing growth in the Eurozone is running at historically high levels, with the PMI for the region reaching 61.4 in August.