The start of 2022 saw growth of output and employment strengthen within UK manufacturing, as companies responded to improved new order intakes, rising backlogs of work and addressed shortfalls in capacity. Although supply chain constraints continued to limit growth, there were early signs that these had passed their peak, a factor contributing to a slight easing in purchase price inflation.
Production volumes rose for the 20th successive month in January. The rate of expansion accelerated for the third month running, reaching its highest level since July 2021. Increased output reflected rising new order intakes, efforts to tackle backlogs of work and a slight improvement in export demand. Some firms also noted that supply chain stresses, staff shortages and slower growth of new work had stymied efforts to raise production further.
Stronger output growth had a positive impact on the trend in job creation during January, with employment in the sector increasing for the 13th consecutive month, with the rate of expansion the second-steepest in 11 years. Companies linked recruitment activity to new project launches, greater demand for products, preparations for future growth and efforts to address capacity shortfalls and rising backlogs.
However, this news was tempered by an easing in the rate of increase in new business. Although the domestic market remained the prime source of new contract wins, the latest survey suggested that growth was less pronounced than in the prior month. New export business meanwhile rose, albeit only slightly, for the first time in five months, amid reports of stronger demand from the EU, the US, China, Brazil and the MENA region.
Although input price inflation remained substantial compared to the historical standards of the survey, the rate of increase eased to a nine-month low. Companies continued to report a wide array of inputs as up in price, including chemicals, electronics, energy, foods stuffs, metals, packaging and timber. Higher costs were passed on to clients in the form of increased output charges.
There were, however, reports that a recent lessening of the overall strain on global supply chains had contributed to the slower pace of increase in costs. Vendor lead times lengthened to the least marked extent since November 2020. Manufacturers mentioned issues relating to raw material shortages, supplier capacity, transportation delays and difficulty in sourcing goods nonetheless.
Industry reaction
Rob Dobson, Director at IHS Markit: “UK manufacturing made a solid start to 2022, showing encouraging resilience on the face of the Omicron wave, with growth of output accelerating as companies reported fewer supply delays. Causes for concern remain, however, as new orders growth slowed, exports barely rose, staff absenteeism remained high and manufacturers' ongoing caution regarding supply chain disruptions led to the beefing up of safety stocks. There was some positive news on the supply chains front. Although pressure on vendors remains severe, and still sufficient to stymie output growth and cause difficulty in obtaining required inputs, supplier lead times lengthened to the lowest degree since November 2020 to suggest that the current period of abnormal stress has hopefully passed its peak, despite the surge in cases linked to Omicron. This also lessened the upward pressure on prices, with input costs and output charges both rising at less elevated rates in January.”
Maddie Walker, Accenture’s Industry X lead in the UK: “The uptick in production output shows the UK economy is making a jump start in 2022, with manufacturers showing remarkable resilience during the Omicron wave. While the pandemic continues to pose threats on factories and labour shortages, we are seeing evidence that supply chain bottlenecks are easing. However, with inflation set to surge, a sharp rise in prices of raw materials will be a major cause of concern this year. Many manufacturers continue to invest in digital technologies, like intelligent automation and 5G connectivity, to help overcome inflationary pressures and maintain their margins. It’s a vital reminder that British manufacturers must revise their operations and upskill their workers in order to embrace digitisation and work towards long-term growth, improved worker safety, and productivity.”
Dave Atkinson, SME & Mid Corporates head of manufacturing at Lloyds Bank: “Overall, the sector continues to drive growth in the UK economy with a strong pace of expansion for 12 consecutive months now. Despite a marginal dip in the month-on-month figure this is a somewhat bullish start to 2022, perhaps reflecting the short-term impact of factors like Omicron. Inflationary pressures, including the energy crisis, higher raw material costs, and biting staff shortages, do continue to force firms to increase their prices. But there are signs of easing supply chain pressures, which bodes well for a slowdown in the rate of price rises.”
Cara Haffey, Industrial Manufacturing and Automotive leader at PwC: "It is good to see positive news continue with growth in UK manufacturing output and production rising at its fastest rate in six months in the latest PMI figures. Production volumes are rising and companies are driving responsible growth. However, purchasing managers still have a difficult balancing act to conquer at the moment, in ordering ahead to ensure timely delivery while hedging against rising costs. Productivity is still key to the UK’s growth and whilst employment growth is welcomed, we do need to continue to invest in new technology and new skills to ensure productivity rises in this country compared to our close neighbours."
