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UK manufacturing orders strong despite supply chain issues

Britain's Prime Minister Boris Johnson visits the Envision AESC Holding Ltd. battery manufacturing facility inside the Nissan Motor Co. plant in Sunderland, Britain July 1, 2021. Jeff J Mitchell/Pool via REUTERS
The survey of 282 manufacturers also saw export order books at their strongest since March 2019. Photo: Jeff J Mitchell/Pool via REUTERS

The UK's factory order growth hit a new record in November, jumping to its highest level since 1977, new data has shown.

According to the latest monthly Industrial Trends Survey from the CBI, manufacturers’ monthly orders book balance jumped to 26% this month, from 9% in October. It was the highest reading since the series started in April 1977.

The survey of 282 manufacturers also saw export order books at their strongest since March 2019.

Output growth in the three months to November remained firm, increasing at a similarly above-average pace to October and September 2021. Some 12 out of 17 sectors saw output increase, with growth driven largely by the food, drink and tobacco, electronic engineering, and chemicals sub-sectors.

However, price expectations among British manufacturers for the next three months also soared to a 44-year high, adding to mounting pressure for the Bank of England (BoE) to take measures to counteract rising inflation.

Read more: Oil prices continue to rise after US release reserves

Former BoE ratesetter Andrew Sentance took to Twitter on Wednesday and said: “Manufacturing orders and output surging and inflation at highest since late 70s. Yet the Monetary Policy Committee (MPC) sits on its hands, keeping interest rates at record low levels. A reality check is needed at the @bankofengland”.

Stock levels of finished goods fell to the lowest on record amid the ongoing supply chain crisis and strong demand as the economy rebounds from the Covid-19 pandemic.

“It’s good to see strong order books and output growth in the manufacturing sector holding up as we head into winter. Output growth has been steady for three months now and remains quicker than its long-run average, Anna Leach, deputy chief economist at the CBI, said.

She added: “But intense supply side challenges continue to put pressure on firms’ capacity to meet demand.

“These pressures highlight that the Government was right to establish the supply chain taskforce to address acute challenges. But with these challenges likely to persist into the new year, business is ready to work with the Government to adopt a more holistic, cross-economy approach to identifying solutions which support the entire supply chain.”

Read more: European stock markets climb higher despite rising COVID fears

Meanwhile, Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “Manufacturing output probably still has scope to rise further in Q4, as formerly furloughed staff are recalled and as manufacturers invest to enhance productivity.

“Even if orders weaken next year, perhaps as restocking demand fizzles out, production will be supported by the large work backlogs that have accumulated this year.”

It comes as the president of the CBI called on prime minister Boris Johnson to "stop hiking taxes and focus on boosting investment".

"The government has said they want a high-wage, high-growth, high-investment, high-productivity economy. Business agrees," he said. “But right now, we are facing a high-tax economy.

“What we need is to stop hiking taxes and focus on boosting investment."

Watch: What is inflation and why is it important?