Supply chain delays, slower new order growth and rising material and labour shortages all constrained growth in the UK manufacturing sector in September. At 57.1, down from 60.3 in August, the seasonally adjusted IHS Markit
/CIPS Purchasing Managers’ Index (PMI) fell to a seven-month low.
Manufacturing production increased for the sixteenth consecutive month in September. However, the rate of expansion eased for the fourth month in a row and to its weakest since February. Growth slowed across the consumer, intermediate and investment goods sectors. Data broken down by company size indicated that upturns at medium-size and large-scale producers were offset by a continued downturn among small firms.
Production schedules were disrupted by a combination of input shortages, longer supplier lead times and capacity constraints (including difficulties with staff shortages and hiring required skills).
Average vendor lead times increased to one of the greatest extents in the survey history, amid
reports of delays to air, land and sea freight, staff shortages at vendors, Covid-19 and Brexit disruptions, a lack of delivery drivers and port delays.
Weaker growth of new business also stymied efforts to increase output further during September. New orders rose at the weakest pace since February, as intakes from domestic clients increased at a slower pace and new export work contracted for the first time in eight months. The decline in new export orders reflected shipping issues, cancellations due to long lead times and capacity issues at clients.
UK manufacturers continued to report labour shortages and difficulties recruiting appropriately skilled staff during September. Although jobs growth was registered for the ninth month running, the rate of increase was the weakest since January. Jobs growth slowed at medium- and large-size companies, while small manufacturers saw cuts for the first time in eight months.
Where higher employment was recorded, this was generally to meet production requirements, combat rising backlogs of work and preparations for future growth. Outstanding business increased at one of the fastest rates on record, with over 30% of firms experiencing an expansion.
Meanwhile, manufacturers maintained a positive outlook for the year ahead in September. Over 62% of companies forecast their output would increase during the coming 12 months, compared to only 6% expecting a contraction. The confident outlook was attributed to recoveries in both domestic and global markets, reduced difficulties from supply chains, Covid-19 and Brexit and planned new product launches.
The impact of supply-chain pressures also impacted inventory holdings. Companies reported building contingency stocks, leading to a further increase in input inventories and purchasing activity. Meanwhile, disruption to production schedules meant additional pressure on holdings of finished products (which fell for the twentieth month in a row).
Rob Dobson, director at IHS Markit, said: “The September PMI highlights the risk of the UK descending towards a bout of 'stagflation', as growth of manufacturing output and new orders eased sharply while input costs and selling prices continued to surge higher.
“Companies are facing a growing list of headwinds, which includes declining new export orders, component shortages, delays to air, land and sea freight, staff shortages exacerbated by Covid-19 illnesses, Brexit disruptions, sharply rising costs and now fuel shortages.
“Production growth is severely impacted by the ongoing strain across supply chains and, with demand far exceeding supply, the inevitable result has been higher prices, which will ultimately hurt the pockets of consumers.
“The jobs market is also experiencing slower growth, as firms experience labour shortages and difficulties recruiting required skills. With little sign of resolution to these issues, manufacturers, especially smaller firms with lower market power or capacity flexibility, will continue to be buffeted by these headwinds for the foreseeable future, hinting at a tough autumn and winter ahead for many firms.”
Duncan Brock, Group director at the Chartered Institute of Procurement & Supply, added: “Manufacturing activity in September was crammed with obstacles to succeed as supply disruptions continued to dampen growth for a fourth month in a row. Smaller businesses were impacted the most as reduced resources in supplies and drivers, made trade more unmanageable as we move towards the last quarter of the year.
“New orders growth slowed again compared to May’s high from both domestic and overseas customers as the Brexit and Covid-19-related long delivery times and accelerating costs contributed to a reduced eagerness to commit. Customers were becoming impatient with sluggish production times from UK businesses, opting to source for more efficiency elsewhere.
“Prices for raw materials and skilled staff continued to soar as 99% of the survey’s supply chain managers said prices had either gone up this month or stayed at elevated rates. These high costs of doing business are affecting jobs, as skilled labour remained both elusive and expensive, leading to the lowest rise in job creation since the beginning of the year.
“The sector is feeling the strain of an ongoing onslaught of snags and hitches at every stage of the supply chain from sourcing raw materials through to component shortages and delivery disruptions.
“Like a whack a mole game where once one difficulty is resolved, another appears soon after, the sector may be challenged but remains stoically convinced that things can only get better in 2022 once the next few gruelling months are at an end.”