Factory output slows with manufacturers suffering 'severe headwind' from global supply chain crisis

Mon 1 Nov 2021
Posted by: William Barns-Graham
Trade News

manufacturing

UK factory output has slowed as manufacturers continue to suffer “severe headwind” from supply chain disruption and staff shortages, prompting them to hike prices at a record pace.

Today’s (1 November) IHS Markit/CIPS UK Manufacturing Purchasing Managers’ Index (PMI) output for October index fell to 51.3, its weakest in eight months and down from 52.7 in September.

Any score above 50 indicates growth.

Overall growth

The overall PMI for last month rose for the first time in five months to 57.8 from 57.1 in September, but Reuters reports that some companies saw overseas clients cancel or postpone orders due to port delays and freight capacity problems.

“This low-growth environment is occurring in tandem with a severe upshoot in inflationary pressures, with manufacturers reporting both a near-record increase in input costs and record rise in selling prices,” IHS Markit director Rob Dobson said.

Price hikes

The Times reports that manufacturers raised their prices by the largest amount in at least two decades after a “severe” increase in raw materials and energy costs.

Duncan Brock, group director at the Chartered Institute of Procurement & Supply (CIPS), warns that supply chain problems are turning into a ‘nightmare’ for some UK manufacturers, with exports slipping back as customers “became tired of waiting”.

“With Brexit adding to the slowdown, the issue here is not one of supply, as goods and materials are being produced, but that logistics challenges have become a nightmare for some companies,” he told the Guardian.

Winter shutdowns?

Fhaheen Khan, senior economist at manufacturers group Make UK, has warned that rising energy costs could force some factories to shutdown this winter.

However, ongoing shortages and congestion at the ports could encourage some manufacturers to move their supply chains back to the UK, said Dave Atkinson, SME & Mid Corporates head of manufacturing at Lloyds Bank.

“Some manufacturers are safeguarding against global logistics challenges by bringing supply chains back to the UK,” he said.

“Yet it’s also an option more are likely to consider as customers increasingly examine the carbon impact of their supply chains, with shipping parts from all over the world becoming less palatable.”

CBI optimism

The CBI’s own survey of business, the CBI Growth Indicator, showed a continuation of a six-month growth period for private sector businesses.

Looking ahead, private sector activity is expected to grow at a similar pace of 27% in the next three months, it predicts.

Alpesh Paleja, CBI lead economist, said: “Given the headwinds business has faced, achieving above average growth for the past six months shows real resilience in the UK economy.”

… but directors are glum

However, the Institute of Director’s Economic Confidence Index fell to -6 in October, down from -1 in September 2021 and the weakest reading since January 2021 when it was -11.

The survey found that a third of directors predict UK inflation will be between 4% and 6% by the end of next year, with another 49% seeing it over the Bank of England’s 2% target (but below 4%).

Kitty Ussher, chief economist at the Institute of Directors, said:

“Directors are still nervous about the state of the UK macroeconomy, in contrast to the exuberance of the early summer, with October’s data continuing to show more people pessimistic than optimistic about prospects for the wider UK economy in the year ahead.”