Almost two-thirds (63%) of businesses said that they expect output to be higher in one year's time, thanks to continued recovery from the pandemic, reopening of the global economy (including less transport restrictions) and reduced Brexit uncertainties.
February's PMI rose to 55.1, up from 54.1 in January and above the flash estimate of 54.9. The PMI has signalled growth for nine months in a row as confidence returns to the market following the pandemic.
However, output rose at the weakest pace during the current nine-month sequence of increase. New orders expanded following a slight decrease in January, as domestic demand improved and new export business inched higher. Companies reported improved demand from several markets – including the US, Asia, Scandinavia and (in a few cases) mainland Europe – but noted that the ongoing impact of COVID-19, Brexit complications and shipping difficulties also constrained export order growth.
More positives came in the form of employment, which rose for the second month running and at the quickest pace since June 2018. Hirings also reflected the ongoing recovery from COVID-19 and raising capacity to meet future demand growth. Backlogs of work also ticked higher, increasing for the fourth month running. The combination of rising output, new orders and outstanding business alongside improved sentiment among manufacturers encouraged further job creation.
Industry reaction
Rob Dobson, Director at IHS Markit, which compiles the survey: “The UK manufacturing sector was again hit by supply chain issues, COVID-19 restrictions, stalling exports, input shortages and rising cost pressures in February. Look past the headline PMI and the survey reveals near-stagnant production, widespread shipping and port delays and confusion following the end of the Brexit transition period.
"In fact the biggest contributor to the headline PMI reading was a near-record lengthening of supplier delivery times. However, while normally a positive sign of an increasingly busy economy, the recent lengthening was far from welcome, more often than not linked to problems resulting from Brexit and COVID related. The resultant shortages for a vast array of components and raw materials, as rising demand chased restricted supply, led to a further acceleration in input cost inflation to a four-year high.
“With current constraints likely to continue for the foreseeable future, pressure on prices and output volumes may remain a feature during the coming months. That said, improved domestic demand as lockdown restrictions ease and a further rise in manufacturers' optimism are reasons to hope brighter times are on the horizon, and have already supported a modest rebound in staffing levels since the turn of the year.”
Simon Jonsson, head of industrial products at KPMG UK: “Manufacturers are buoyed by the general sense of improving demand for their products and are feeling quietly confident about the future. All eyes are now on Wednesday’s Budget to see if the Chancellor has any surprises up his sleeve that will give the industry’s businesses a boost for the latter part of the year. There’s a heightened sense of awareness around employment levels in the sector as government furlough schemes draw to a close later in the year and manufacturers begin to focus on growth. This will prompt renewed vigour in tackling the skills shortage and the perennial challenge of productivity, with disruptive technology advances holding the key.”
Huw Howells, head of manufacturing and industrials at Lloyds Bank: “International supply lines remain tangled after months of disruption which, clients are telling us, is delaying imports of in-demand materials and causing production to flatline despite rising order books. Supply challenges, particularly for businesses with large networks, will take months to iron out. In response, firms may consider creating their own certainty by onshoring supply chains. This would have a longer-term positive influence on UK manufacturing, subject of course to UK capability.
“Growing order books combined with new opportunities arising from the green recovery, including planned 'gigafactories' in Coventry and the North East, also represent a promising outlook for the sector. This year, we hope to see ever more manufacturing businesses focussing on reducing their carbon footprint further.
“But fierce challenges persist for some, including those in aerospace supply chains. Despite some hope that the expected lifting of restrictions in the spring could drive passenger volumes and demand, it’ll take time for the sector to recover.
“Many manufacturers will be looking for certainty over the extension of furlough and other business relief measures from the Chancellor this Wednesday as they continue to buffer against headwinds.”
