Despite the dip, the sector remained in a strong growth phase in June, with rates of expansion in output, new orders and employment among the best seen during the near 30-year survey history. Industry was still beset by supply-chain and distribution difficulties, however, leading to longer vendor lead times and disruption to production schedules.
Manufacturing production increased at marked rates across the consumer, intermediate and investment goods industries during June. Growth was supported by strong intakes of new business, which rose at a rate close to May's record high.
Improved demand was linked to the ongoing easing of COVID-19 restrictions, the re-opening of the economy from lockdown and improving global market conditions. New export orders increased again, with work coming from mainland Europe, the US and Asia.
The strong upswing in global market conditions combined with constraints introduced to combat the COVID-19 pandemic continued to result in considerable supply-chain and cost pressures in June.
Average input costs rose at the fastest pace in the survey history, with over three-quarters (77%) of manufacturers reporting an increase. A wide range of raw materials were up in price, including chemicals, electronics, energy, food products, metals, plastics and timber. Cost pressures were exacerbated by demand outstripping supply, logistic delays and raw material shortages.
Vendor lead times meanwhile lengthened to an extent only surpassed by that seen during the first COVID-19 lockdown in April 2020. Part of the lengthening reflected increased demand for raw materials, as purchasing activity rose at a rate close to May's record high. Companies linked increased input buying to rising demand and efforts to protect against supply-chain delays and input shortages.
Employment rose at a rate close to May's record high during June. Jobs growth reflected capacity issues – highlighted by near-record accumulation of work backlogs – and optimism among manufacturers. Almost 63% of companies expect production to rise over the coming year, reflecting reduced uncertainty regarding COVID-19 and Brexit and improving global market conditions.
Industry reaction
Dan Farrell, Industry X UK Technology Lead at Accenture: “The continued strength in manufacturing is a boost for the UK’s recovery – and we expect demand for goods to keep rocketing when parts of the economy re-open. However with bottlenecks at ports, British manufacturers continue to face pressure on their supply chains which will temper optimism to keep up with demand. Technology will be the key to resilience moving forward. Firms are looking to improve the inflow of new orders by digitizing their operations and bringing more production onshore. The pandemic has already accelerated the rate at which manufacturers have been investing in technology to bring better connectivity to the factory floor and digitize their operations and warehouse logistics. Leading companies are scaling new solutions across their business, including deploying more robotics and 5G-enabled technology. It’s vital that manufacturers continue to upskill their people to make the most of new technologies – and fuel an impressive rebound in manufacturing.”
Lee Collinson, Head of Manufacturing at Barclays: “More welcome news from UK manufacturing with growth continuing at a gallop as pent-up demand is unleashed following the further lifting of COVID restrictions. Particularly encouraging is the increase in export activity as global markets also fire back into action, and especially at a time when research reports of a healthy appetite for UK products across the world with overseas markets willing to pay a premium for British goods. However, supply chain issues and rising costs continue to make their heavy presence felt and with demand outstripping supply, inflationary pressures will have a lot to say on further progress for now.”
Huw Howells, head of manufacturing and industrials at Lloyds Bank: “The PMI provides an early indicator that the sector’s rebound is beginning to look like a sustained bounce after an encouraging few months of robust and accelerated growth.
“Yet the supply picture is a cause for concern. Parts remain stuck on ships that were held up during the Suez crisis back in April and despite a generally positive Covid-19 picture, pockets of virus outbreaks globally are forcing lockdowns and causing new blockages to supply. This supply disruption is adding to other inflationary pressures that are making production more expensive, creating another headache for manufacturers.”
