However, with a reading still well above 50, there are clear indications that, while slowing, the sector's post-pandemic recovery is continuing.

Manufacturing production increased for the 16th consecutive month in September. However, the rate of expansion eased for the fourth month in a row and to its weakest since February. Growth slowed across the consumer, intermediate and investment goods sectors. Data broken down by company size indicated that upturns at medium and large-scale producers were offset by a continued downturn among small firms.

Production schedules were disrupted by a combination of input shortages, longer supplier lead times and capacity constraints (including difficulties with staff shortages and hiring required skills). Average vendor lead times increased to one of the greatest extents in the survey history, amid reports of delays to air, land and sea freight, staff shortages at vendors, COVID-19 and Brexit disruptions, a lack of delivery drivers and port delays.

Weaker growth of new business also stymied efforts to increase output further during September. New orders rose at the weakest pace since February, as intakes from domestic clients increased at a slower pace and new export work contracted for the first time in eight months. The decline in new export orders reflected shipping issues, cancellations due to long lead times and capacity issues at clients.

UK manufacturers continued to report labour shortages and difficulties recruiting appropriately skilled staff during September. Although jobs growth was registered for the ninth month running, the rate of increase was the weakest since January. Jobs growth slowed at medium and large sized companies, while small manufacturers saw cuts for the first time in eight months.

Meanwhile, manufacturers maintained a positive outlook for the year ahead in September. Over 62% of companies forecast their output would increase during the coming 12 months, compared to only 6% expecting a contraction. The confident outlook was attributed to recoveries in both domestic and global markets, reduced difficulties from supply chains, COVID-19 and Brexit and planned new product launches.

The impact of supply-chain pressures also impacted inventory holdings. Companies reported building contingency stocks, leading to a further increase in input inventories and purchasing activity. Meanwhile, disruption to production schedules meant additional pressure on holdings of finished products (which fell for the 20th month in a row).

Industry reaction

Huw Howells, head of manufacturing and industrials at Lloyds Bank: “Materials shortages are taking the wind from manufacturers’ sails, with the PMI signalling a significant slowdown in the sector’s month-on-month growth. While it’s possible that things could get worse before they get better, we should remember that a reading above 57 indicates strong growth and was a rarity before the pandemic. And while serious headaches persist in the supply chain, they’re unlikely to be enough to tip the sector’s growth into reverse.”

Iain Black, Partner at MHA: “All eyes of manufacturers will be on the looming government autumn budget on 27 October. They will be urging the Chancellor to announce healthy capital investment incentives, alongside much needed new measures to strengthen the manufacturing sector now that Brexit is bedding in. Just as importantly, the government must introduce measures to further stimulate research and development and take a long hard and overdue look at business rates to inject greater confidence for manufacturers as the UK continues its road to recovery.”

Maddie Walker, Accenture’s Industry X lead in the UK: “While UK manufacturing output has slowed for the fourth consecutive month, it’s not yet triggering alarm bells with manufacturers showing healthy optimism to meet orders. We expect a slowdown to continue as manufacturers see no respite from supply chain gridlocks, restricted port capacity and workforce shortages. British businesses are improving their resilience by investing in areas such as automation and 5G connectivity, to streamline production processes and better connect their supply chains. Investment in new software and machinery, particularly with the UK’s roadmap in electric vehicle production, will likely kickstart greater demand for technology skills. A shift to software-based engineering will require manufacturers to develop and upskill their people or risk a severe skills shortage in the future.”