Manufacturing production rose at one of the quickest rates in the series history, bettered only by those registered in August 2013 and July 1994. Underpinning the latest increase were record gains in new business, as domestic and overseas demand continued to revive. Companies linked new order growth to rising business confidence, the further re-opening of the UK economy and reduced issues relating to COVID-19.
New export orders also rose at a survey-record pace in May, amid reports of stronger demand from the EU, the US and China. That said, there were continued signs that while large companies were seeing record gains in new export work, the rate of increase at small firms was comparatively mild.
A negative impact of this increase in demand has been growing pressure on capacity, with backlogs of work rising to the greatest extent in the survey history. This was a major factor in encouraging firms to reinvigorate their recruitment plans, leading to a record increase in staffing levels at manufacturers.
Suppliers also felt the pressure, with the average delivery time lengthening to near-record levels, caused by a combination of a shortage of materials (especially electronics, plastics and metals), transport delays and higher demand.
Rob Dobson, Director at IHS Markit: “Growth is being boosted by the unlocking of economies from COVID restrictions and ongoing vaccination programs. This is being felt across the globe, as highlighted by a record rise in new export business during the latest survey month.
“The corollaries of this strong upsurge in industrial activity are increased strain on supply chains and a build-up of price pressures. Supplies of inputs into manufacturers and finished goods on to clients are both being severely disrupted by raw material shortages, port issues, COVID restrictions, post-Brexit difficulties and market forces as demand outstrips supply. Suppliers’ delivery times subsequently lengthened to one of the greatest extents on record, while input costs and selling prices both rose at unprecedented rates. With little sign of supply pressures receding, these price rises will become more visible to consumers.”
Simon Jonsson, head of industrial products at KPMG UK: “Confidence is high among manufacturers as demand continues to soar but there’s a danger that many are only seeing the weather in front of them. Our closest European neighbours, France and Germany, are also witnessing similar levels of demand for their products. Supply chain bottlenecks are now starting to appear in Germany and fingers are crossed we will not see the same elsewhere.
“There are increasing worries about the risks of inflation and strains in the labour market due to skills shortages, while the government is also starting to look at the prospect of an increase in unemployment once support measures are eased, which threatens to stymie the recovery.”
Dave Atkinson, SME & Mid Corporates head of manufacturing at Lloyds Bank: “Such strong growth in the PMI may surprise some but it’s a clear sign that supply chain challenges, which have had an impact on output, are beginning to wane while demand is recovering.
“The continuing rebound is clearly good news, yet it carries with it a risk to businesses. History shows that more companies face challenges managing cash shortfalls when coming out of a recession than going into one. And some smaller manufacturers will be scaling up capacity and filling production lines while cash reserves will be depleting.
“Increasing production to meet the high demand is tempting but firms will need to be prudent in their cashflow planning to avoid falling victim to overtrading.”
Atul Kariya, Head of Manufacturing and Engineering and Partner at MHA: “High customer demand for products driven by further opening up of the economy continues to spur the UK’s manufacturing sector. As many manufacturers have and continue to operate through lockdown restrictions, it’s evident that the impact of pent-up demand is now working its way through the system.
“This demand, coupled with short term tax incentives announced in the March budget, has emboldened manufacturers to increase their capital expenditure (CapEx), accelerate recruitment, and make greater investments, all of which are further increasing demand for products and productivity within the sector.
“UK manufacturers have shown incredible resilience during extremely challenging circumstances this year, including the ongoing Covid-19 pandemic, post-Brexit issues and the recent Suez Canal crisis. As we enter the summer months, businesses are faced with new hurdles, such as inflationary pressures on raw materials, components and supply chain shortages which pose significant threats to the recent growth in production.
“Indeed, high demand for materials, components and aggregates has already led to inflationary pressures and higher production costs. Worse still, supply chain issues and product shortages are an ongoing issue that could stifle the sector’s recovery. But perhaps the biggest threat of all is the increase in global inflation which should be a major concern and has the potential to slow down the UK manufacturing sector (as well as the wider economy) this year.”