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UK manufacturing costs rise to highest in 30 years

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File photo dated 06/01/14 of workers at a manufacturing company. The UK's manufacturing sector saw growth slow last month on the back of surging material and staff shortages, according to new figures. The closely watched IHS Markit/CIPS Purchasing Managers' Index (PMI) returned a reading of 57.1 for September, down from 60.3 in August. Issue date: Friday October 1, 2021.
Manufacturers continued to face a challenging operating environment, as severely stretched supply chains disrupted production schedules and drove up prices. Photo: PA

The rate of growth in the UK manufacturing sector slowed in November compared with previous months and input costs mounted, despite rates of expansion in output and new orders gaining some traction.

According to the latest release by IHS Markit, manufacturers continued to face a challenging operating environment, as the demands on supply chains disrupted production schedules and drove up input prices to the greatest extent in the survey's 30-year history.

The release showed all five of the PMI components had a positive influence, as production, new orders, employment and stocks of purchases rose and supplier lead times lengthened.

"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," said Rob Dobson, director at IHS Markit.

Output increased for the eighteenth month running in November, with the rate of expansion accelerating slightly from October's eight-month low. Companies reported that improved new work intakes – especially from the domestic market – and efforts to build safety stocks supported increased output.

Markit said there remained widespread mention of input and labour shortages hampering efforts to raise production, however. This led to existing stocks being depleted to satisfy customer orders.

"Whilst some manufacturers are reassessing existing supply chains, finding new suppliers and more direct routes to source, many are left at the mercy of local and global supply chains, components shortages and logistics availability," said Simon Jonsson, head of industrial products at KPMG UK. "Inflation is also becoming a real concern."

“These factors are combining, and as the UK tries to sail out of the covid economic storm, these headwinds could slow progress. It is even more important for manufacturing businesses to double down and manage these risks.

The strain on supply chains also led to further substantial lengthening of lead times. This resulted in shortages of components and commodities, combined with input demand outstripping supply, led to a survey record increase in average purchase prices.

Read more: UK private sector growth resilient against supply chain pressures

Around three-quarters of manufacturers reported a rise, compared to less than 1% seeing a fall. Cost and market pressures also affected selling prices, which rose at a rate close to October's series-record.

"About 74% of supply chain managers paid more for their goods in November, as prices charged also accelerated at a rapid pace, raising fears that the UK economy could over inflate if supply chain disruption doesn’t subside in the first quarter of 2022," said Duncan Brock, group director at the Chartered Institute of Procurement & Supply.

Capacity also remained stretched at UK manufacturers during November, with backlogs of work reaching a near record high. This supported further job creation in the sector, with employment rising for the eleventh month running and at the quickest pace since August.

Watch: Will interest rates stay low forever?

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