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UK manufacturing PMI almost broke all-time record in April

04 May, 2021

The UK manufacturing PMI (Purchasing Managers’ Index) came close to setting an all-time record in April when it hit 60.9 – its highest level since July 1994, when it hit a peak of 61. The monthly survey, compiled by IHS Markit and CIPS, reveals that the growth of output and new orders were among the best for seven years, but the sector is still suffering from supply-chain delays and input shortages, leading to increased purchasing costs and record selling price inflation.

UK manufacturing output increased for the 11th successive month during April. The survey attributes this to a loosening of lockdown restrictions, improved demand and rising backlogs of work. Employment in the sector rose for the fourth successive month.

Underpinning the expansion of production was a marked improvement in new business. New orders rose for the third month in a row, due largely to a further revival of domestic market conditions. Stronger client confidence, the re-opening of parts of the economy, and improving global market conditions, all contributed to sales growth.

Although new export business also rose in April, the growth was weak compared to total new orders. Larger manufacturers saw a substantial expansion in new export orders, but for smaller firms the rise was “marginal”.

Two-thirds (66%) of the companies surveyed expect output to be higher in a year's time, while 4% are expecting a contraction. Confidence is at its highest level for seven years, reflecting lower expected disruption from Covid-19 and Brexit, economic recovery, improved client confidence and planned new product launches.

Average selling prices rose at their fastest pace since the data was first collected in November 1999, as manufacturers passed on substantial cost increases. Demand outpacing supply was also cited as a factor contributing to both selling price and input cost increases.

Supply-chain delays and input shortages led to near-record lengthening of vendor lead times. Manufacturers attempted to protect themselves against further delivery delays and rising input costs by stepping up purchasing to one of the greatest extents in the PMI survey’s history.

“Further loosening of Covid-19 restrictions at home and abroad led to another marked growth spurt at UK factories,” comments IHS Market director, Rob Dobson. “The headline PMI rose to a near 27-year high, as output and new orders expanded at increased rates. The outlook for the sector is also increasingly positive, with two-thirds of manufacturers expecting output to be higher in one year’s time. Export growth remains relatively subdued, however, as small manufacturers struggle to export.

“The sector also remains beset by supply-chain issues and rising inflationary pressures,” he adds. “Disruption following Brexit and Covid-19, especially at ports, caused a further near-record lengthening of supplier delivery times. The resulting input shortages kept producer price inflation among the highest over the past four years. Manufacturers have generally passed on these costs to customers, as highlighted by a survey-record rise in selling prices, but it is hoped that this inflationary backdrop will subside once supply and demand come back into line as Covid-related logistic delays ease.”

The UK manufacturing PMI hit a 321-month high in April. Any value over 50 is an improvement on the previous month
Source: IHS Markit / CIPS

Duncan Brock, group director at the Chartered Institute of Procurement & Supply, says that “the manufacturing sector was flooded with optimism in April as the PMI rose to its highest level since July 1994, bolstered by strong levels of new orders and the end of lockdown restrictions opened the gates to business. It was primarily the home market that fuelled this upsurge in activity though more work from the US, Europe and China demonstrated there were also improvements in the global economy. This boom largely benefited corporates as output growth at small-scale producers continued to lag behind.

“As businesses raced to meet the need for increased capacity, the lost jobs of 2020 returned in greater numbers and employment creation continued in earnest at similar levels to last month and at a pace rarely surpassed in the survey history.

“However, the still-significant delays in the delivery of goods due to the pandemic, Brexit and the Suez blockage in some sectors hampered further progress on two counts. The slow delivery of goods motivated supply chain managers to increase their order numbers and try to build up recently unravelled stocks leading to further hold-ups, and the injection of more inflationary pressures into the economy. Price rises were amongst the highest in the last three decades and shortages in some essential materials intensified. This, in turn, led to customers paying more and at a rate not seen since records began in late-1999. This is likely to filter down to consumers before too long.”

Commenting on behalf of the manufacturers’ organisation Make UK, senior economist James Brougham points out that the PMI figure is the highest for nearly 27 years, “showing an industry that is outpacing its growth projections from just three months ago. Since the start of the year, output has consistently surpassed expectations, now coming to a head with today’s record-breaking figure.

“While this marked positivity is welcome news for the UK economy, and certainly reflective of the abundance of activity seen throughout the manufacturing sector since the start of the year,” he adds, “we must remind ourselves that these figures being reported today come in response to the severity of the decline experienced in the same sector in the last year.

“Very high growth figures were always expected in the sector this year following 2020’s decline, but the early arrival of this growth will certainly serve to improve confidence in the UK manufacturing industry’s recovery from the pandemic, despite growing challenges around the supply-chain and soaring input prices. The sustainability of these meteoric growth levels will be challenged by supply-side disruption in the coming months.”

• Manufacturers in the EU and the US have also recorded strong April PMIs, with Italy, Austria and the Netherlands all setting new records, and Spain hitting a 256-month high. In the US, manufacturers achieved their strongest improvement in operating conditions on record, with order growth hitting an 11-year high. However, supply-chain delays were the worst in the survey’s history while material costs rose at their fastest rate since 2008, prompting a rapid rise in output prices. In Germany and France, the manufacturing PMIs dropped slightly.

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