UK manufacturing activity increased to a three-month high in November, but the spectres of soaring costs and struggling supply chains continued to loom large.
The IHS Markit Purchasing Managers’ Index, a seasonally-adjusted monthly survey, rose from 57.8 in October to 58.1 in November. A reading above 50 indicates growth.
“Although November saw rates of expansion in output and new orders gain some traction, growth remains lacklustre compared to the first half of the year,” said Rob Dobson, director at IHS Markit.
Production, new orders and employment all increased within the sector in November, with output rising for the 18th month running. The rate of expansion was slightly above October’s eight-month low.
Improved new work intakes were driven by the domestic market, with firms reporting more returning customers and rising client confidence.
Employment rose for the 11th month in a row and at a quicker pace than in the previous months.
Meanwhile, business optimism rose to a three-month high. Citing the COVID recovery, product launches, planned marketing campaigns, business expansions and reduced supply chain stresses, 63% of companies said they expected output to rise over the next 12 months and just 6% predicting a decline.
Growth and increased optimism came with a backdrop of input prices rising at a record rate in the survey’s 30 years.
Though businesses did say supply chain issues were beginning to ease, they remained “intense”, according to the survey, and continued to disrupt production schedules and drive up prices.
Labour shortages were also a challenge, leading to stocks being depleted in order to meet customer orders and an increase in average vendor lead times.
While domestic demand improved, UK new export orders dropped for a third consecutive month due to weaker demand from China and Brexit-related disruptions to trade with the EU. Some orders were also cancelled due to longer lead times.
IHS Markit’s Rob Dobson said: “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.
“Stretched supply chains, component shortages and a vast mismatch between demand and supply are all exerting massive upwards pressure on input costs. This is also filtering through to prices charged at the factory gate, which rose at a rate close to October's record high.”
“For those concerned about the strength of the jobs market as support schemes are withdrawn, positive news is provided by a further solid rise in manufacturing headcounts,” he added.
A similar picture emerged across the channel in the Eurozone, where the Manufacturing Purchasing Managers’ Index, also published today, showed some growth but even greater supply challenges.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, commented on the UK figures: “Looking ahead, with manufacturers now hiking prices substantially … growth in demand will likely slow.
“Nonetheless, manufacturers now have such a large backlog of unfulfilled orders that they will be kept busy over the winter even if demand falters. As a result, manufacturing output should gradually converge over the coming months towards its pre-Covid level.”
Tombs noted, however, that the new COVID-19 variant dubbed Omicron could be a “game changer” and that “shortages of inputs and labour would worsen for manufacturers if the UK and other countries went into another lockdown.”
Dobson agreed, stating: “The survey highlights how the subdued rate of manufacturing growth and export decline leaves industry in a vulnerable position to any new headwinds, not least the Omicron variant.”
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