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UK labour and supply worries hit record high ahead of Christmas

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Firms reported that growth in average unit costs, domestic prices, and export prices sped up to their quickest on record. Photo: Getty Images
Firms reported that growth in average unit costs, domestic prices, and export prices sped up to their quickest on record. Photo: Getty

SME fears that labour and materials shortages could impact future production hit an all-time high in the three months to October, new data revealed.

The Confederation of British Industry published an SME Trends Survey that was completed by 249 companies. It showed that almost two-thirds of SME manufacturers are concerned that the supply of materials and components could impact their output in the next three months — the highest share on record since 1988.

Worries about the availability of skilled labour (46%) were also higher than at any other time in the survey data’s 33-year history.

Firms reported that growth in average unit costs, domestic prices, and export prices sped up to their quickest on record, and growth in all three is expected to accelerate further next quarter.

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“The optimism of summer has given way to an uncertain autumn for SMEs in the manufacturing sector, as firms struggle with persistent supply challenges and acute cost and price pressures,” said Alpesh Paleja, CBI lead economist.

The report also showed that growth has slowed over the past three months, following July’s record rise in output — it went from an increase of 36% to an increase of 14%.

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But it remains “solid” in comparison to the long-run average, and is also expected to pick up again in the coming quarter — going up 30%.

Total new orders growth remained firm despite easing on last quarter’s record-high rate, going up 24% compared to 45%, reflecting an easing in both domestic (24% from 41%) and export orders growth (6% from 15%).

SME manufacturers expect total new orders growth to be maintained at a similar pace next quarter.

Paleja welcomed the creation of a new supply chain taskforce by the UK government which he said "crucially utilises expertise in understanding and addressing these challenges."

“It has been encouraging to see the government recognise the issues facing businesses and begin to take action to address supply chain issues and skills shortages," said Paleja.

“Business and government working together is the best way to restore momentum to the UK recovery, and move towards building the high-wage, high-skill, high-investment, high-productivity economy that we all want to see.”

The three months to October also saw further strong growth in firms’ headcounts, despite the rate slowing slightly from July’s record high — with expectations for headcount growth to accelerate again in the coming quarter.

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Business sentiment was broadly flat (-2%) after having grown rapidly in the past two quarters and investment intentions for the year ahead softened somewhat on the previous quarter, but generally remained strong.

Firms expect to increase investment in plant and machinery, product and process innovation, and training and retraining in the next 12 months, but to a lesser extent than last quarter, the report said.

Last month, G7 finance ministers and central bank governors pledged to work together to monitor supply chain issues, as UK ports warn of a potential pre-Christmas logjam slowing deliveries.

Watch: Will interest rates stay low forever?

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