Saturday, May 28, 2022

Manufacturing growth picks up despite rising price inflationary pressures

The start of the second quarter saw a mild growth acceleration in the UK manufacturing sector. The rate of expansion in output improved from March’s five-month low, leading to a further solid increase in staffing levels.

The seasonally adjusted S&P Global / CIPS UK Manufacturing Purchasing Managers’ Index® (PMI®) rose to 55.8 in April, up from 55.2 in March and the earlier flash estimate of 55.3. The PMI – which is calculated as a weighted average of five subindices – has signalled expansion for 23 successive months.

Manufacturing production increased across the consumer, intermediate and investment goods industries. Solid rates of expansion were registered in the latter two categories, while the expansion at consumer goods producers was only marginal.

Companies linked higher production to increased intakes of new business, reduced delivery delays (compared to earlier in the year) and efforts to clear backlogs of work. The outlook
also remained positive, with almost 55% of companies expecting output to rise over the coming year. However, the overall degree of confidence slumped to a 16-month low.

Strong growth headwinds continued to buffet manufacturers during April. New order growth slipped to its weakest in the current 15-month upturn, stymied by lower intakes of new export business and the impact on demand from rising selling prices. Weaker foreign demand reflected subdued conditions in overseas markets, the war in Ukraine and
transportation issues. Lacklustre demand from the EU was linked to longer delivery times, customs checks and higher shipping costs post-Brexit.

Inflationary pressures continued to build at manufacturers. Input costs rose at the second-strongest pace in the survey history. Around 85% of companies registered an increase in
purchase prices, while there were no reports of a decrease (a survey first). The rate of inflation at consumer goods producers hit a series-record high.

A broad range of inputs were reported to be up in price. This included chemicals, energy, food, freight, fuels, gas, metals, oil, plastics, polymers, timber, and transportation (air, land
and sea). Several companies simply noted that “everything” cost more. Supplier price increases, market forces, the war in Ukraine, general inflationary pressure and China lockdowns also contributed to higher purchase prices.

April also saw output charges increase to a record extent, as manufacturers acted to pass on rising costs. Almost 61% of companies reported an increase in selling prices, compared
to less than 1% initiating a reduction. Rates of output charge inflation were either at, or near to, series-record highs across the consumer, intermediate and investment goods sectors.

Employment rose for the sixteenth month running in April, as companies reacted to increased production and rising order backlogs, prepared for expected future growth and
addressed staff shortages. Job creation was seen in the consumer, intermediate and investment goods industries and at SMEs and large-sized companies alike.

Purchasing activity increased for the fifteenth month in a row during April. Companies reported buying inputs in advance of expected price rises, to build-up safety stocks and to guard against further supply chain disruption.

Vendor lead times lengthened again in April. This reflected input shortages, port congestion, COVID issues, a lack of transportation capacity (especially for trucks and shipping), customs clearance delays, lockdown in China and the war in Ukraine.

Commenting on the latest survey results, Rob Dobson, director at S&P Global, said: “The improved expansion of output at manufacturers, while positive in itself, failed to mask the continued headwinds buffeting the sector at the start of the second quarter. New business growth near-stalled as a slowdown in the domestic market was accompanied by a further deterioration in export orders.

“Manufacturers and their clients are struggling as lockdowns in China and the Ukraine war exacerbate stretched global supply chains, the inflationary picture worsens and geopolitical tensions rise. Specific to the UK, Brexit represents an additional headwind, notably via lost
EU customers, increased paperwork, customs checks and border delays. Business optimism has fallen to a 16-month low as companies become more cautious about the future outlook.

“The inflationary situation is getting increasingly fraught. Input costs rose to the second-greatest extent in the 30-year survey history, leading to a record increase in factory gate
selling prices. Around 85% of manufacturers reported higher purchasing costs, compared to no reports of a decrease, with several firms simply noting that ‘everything’ was up in price. Worryingly, consumer goods producers reported record increases in both output charges and input costs, which is likely to further constrain household spending and reinforce the cost-of-living crisis.”

Duncan Brock, group director at the Chartered Institute of Procurement & Supply, said: “In spite of the softer rate of expansion in new business, the manufacturing sector held its ground in April, benefiting from work already in hand and recent easing of supply chain

“However, it is difficult to see where ongoing growth will come from in the coming months as new order growth was the most sluggish in over a year. Higher costs and shortages
took a bite out of potential opportunities with clients hesitating to place orders and Brexit obstacles weighing down as work from overseas shrank for a third month in a row. Not one business in the survey reported paying less for their materials in April and 85% of supply chain managers reported higher costs, leading to the second highest inflationary rise in PMI history.

“Manufacturers are certainly feeling the pressure resulting in less optimism for the year ahead. With the lowest business expectations since December 2020, the global economy will need to pull a rabbit out of the hat to give manufacturers the leg up they need.”

A message from the Editor:

Thank you for reading this story on our news site - please take a moment to read this important message:

As you know, our aim is to bring you, the reader, an editorially led news site and magazine but journalism costs money and we rely on advertising, print and digital revenues to help to support them.

With the Covid-19 pandemichaving a major impact on our industry as a whole, the advertising revenues we normally receive, which helps us cover the cost of our journalists and this website, have been drastically affected.

As such we need your help. If you can support our news sites/magazines with either a small donation of even £1, or a subscription to our magazine, which costs just £31.50 per year, (inc p&P and mailed direct to your door) your generosity will help us weather the storm and continue in our quest to deliver quality journalism.

As a subscriber, you will have unlimited access to our web site and magazine. You'll also be offered VIP invitations to our events, preferential rates to all our awards and get access to exclusive newsletters and content.

Just click here to subscribe and in the meantime may I wish you the very best.

Latest news

Related news

By continuing to use the site, you agree to the use of cookies. more information

The cookie settings on this website are set to "allow cookies" to give you the best browsing experience possible. If you continue to use this website without changing your cookie settings or you click "Accept" below then you are consenting to this.