November PMI sees record rise in input prices

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UK manufacturers continued to face a challenging operating environment in November, as severely stretched supply chains disrupted production schedules and drove up input prices to the greatest extent in the 30-year history of the Purchasing Managers' Index (PMI) survey.

The seasonally adjusted IHS Markit/CIPS PMI rose to a three-month high of 58.1 in November, up from 57.8 in October. All five of the PMI components had a positive influence, as production, new orders, employment and stocks of purchases rose and supplier lead times lengthened.

Output increased for the 18th consecutive month, with the rate of expansion accelerating slightly from October's eight-month low. Companies reported that improved new work intakes – especially from the domestic market – and efforts to build safety stocks supported increased output.

There remained widespread mention of input and labour shortages stymieing efforts to raise production, however. This led to existing stocks being depleted to satisfy customer orders.

The strain on supply chains also led to further substantial lengthening of average vendor lead times. Resulting shortages of components and commodities, combined with input demand outstripping supply, led to a survey record increase in average purchase prices. Around three-quarters of manufacturers reported a rise, compared to less than 1% seeing a fall.

Cost and market pressures also affected selling prices, which rose at a rate close to October's series-record. November saw inflows of new business increase for the tenth straight month, underpinned by stronger UK market conditions, returning customers and rising client confidence. The trend in new export orders worsened, however, with intakes dropping for the third month in a row. There were reports of weaker demand from China, disruption to trade with the EU (in part due to ongoing Brexit complications) and the cancellation of some orders due to extended lead times.

Despite this, UK manufacturers maintained a positive outlook during November, with business optimism rising to a three-month high. Over 63% of companies expected output to rise over the coming 12 months, with only 6% forecasting a decline. Positive sentiment was linked to COVID recovery, economic growth, new product launches, planned marketing campaigns, business expansions, diversification, innovation and reduced supply chain stress.

Industry reaction

Rob Dobson, Director at IHS Markit: “Although November saw rates of expansion in output and new orders gain some traction, growth remains lacklustre compared to the first half of the year. Manufacturers are facing a challenging backdrop, with rising supply chain disruptions, staff shortages and inflationary pressures stifling growth while ongoing difficulties caused by Brexit and logistical headaches restrict opportunities to expand into overseas markets. New export sales fell for the third straight month.

“The current mix of supply-side constraints, cost increases, skill shortages and rising demand for labour will add to the expectations of an imminent rate increase by the central bank, but the survey highlights how the subdued rate of manufacturing growth and export decline leaves industry in a vulnerable position to any new headwinds, not least the Omicron variant.”

Simon Jonsson, Head of Industrial Products at KPMG UK: "It is good to see strong demand for manufactured goods, but a lack of components is leading to increasing under-utilisation of UK factories, holding back productivity improvement and the wider economic recovery.

“Whilst some manufacturers are reassessing existing supply chains, finding new suppliers and more direct routes to source, many are left at the mercy of local and global supply chains, components shortages and logistics availability. Inflation is also becoming a real concern.

“These factors are combining, and as the UK tries to sail out of the economic storm, these headwinds could slow progress."

Dave Atkinson, SME & Mid Corporates head of manufacturing at Lloyds Bank: “Faster output growth suggests that manufacturers are finding some success working around the supply chain challenges that continue to drag on the sector.

“The enduring skills-gap is encouraging more firms to retrain engineers with the expertise required to integrate new automated technologies. Meanwhile, some are taking action to review and shore-up supply chains to help overcome port backlogs and soaring shipping costs.

“Undeterred by rising prices, driven by fuel and transport costs, demand remains high. The visibility this offers manufacturers over their order books will give them the confidence to invest in overhauling the materials, equipment, and machinery currently in use in favour of more sustainable alternatives. In turn, this will boost their long-term competitiveness as both customers and regulation demand more climate-friendly solutions."

Maddie Walker, Industry X lead in the UK at Accenture: “Despite ongoing challenges with rising costs, inflation and labour shortages, UK manufacturers have proven their resilience. Growing fears around supply chain disruption and interest rate rises could have understandably led to draining confidence in the sector. But signs of output improvement in today’s news is testament to the investments made by manufacturers, particularly in technology, to manage ongoing difficulties. As we enter the height of the intensely demanding Christmas period, manufacturers must continue to assess where they can use increased automation and connectivity to stay resilient and become even more agile.”