UK Manufacturing PMI: Growth, staffing levels up despite building inflationary pressures

Posted on 4 May 2022 by James Devonshire

The UK manufacturing industry has started the second quarter of the year on a positive note, posting a mild growth acceleration despite a number of challenges, figures released yesterday reveal.

Key takeaways:

  • Seasonally adjusted S&P Global / CIPS UK Manufacturing PMI rose to 55.8 in April – up from 55.2 in March and the earlier flash estimate of 55.3
  • 55% of manufacturers expect output to increase over the coming year
  • 85% of firms saw purchase prices rise, while there were no reports of a decrease (a survey first)
  • 61% of manufacturers increased their selling prices in response to rising costs
  • Employment in the manufacturing sector rose for the 15th successive month
  • New order growth slipped to its weakest in the current 15-month upturn
  • Purchasing activity increased for the 15th month in a row

According to the latest S&P Global / CIPS UK Manufacturing PMI®, industry has now expanded for 23 successive months, with production growth witnessed across the consumer, intermediate and investment goods industries – albeit only marginal for consumer goods producers. Manufacturers cited new business, reduced delivery delays and clearing of backlogs as influencing the higher production. Almost 55% of firms indicated that they expect output to continue to rise over the coming year. However, the
overall degree of confidence slumped to a 16-month low.

Nevertheless, despite the seeming positivity, it’s not all been plain sailing for manufacturers. Indeed, firms continue to be buffeted by strong headwinds as they carry on their recovery journeys. New order growth slipped to its weakest in the current 15-month upturn, hamstrung by less new export business and weakened demand as a result of increased selling prices.

Subdued conditions in foreign markets, the ongoing war in Ukraine and wider transportation issues all impacted overseas demand, leading to a drop in export orders. Meanwhile, closer to home in the EU, longer delivery times, customs checks and higher post-Brexit shipping costs are stymying demand.

Manufacturers are also facing a tough time right now as a result of inflationary pressures. The figures show that input costs rose at the second-strongest pace in the survey
history, with approximately 85% of firms citing an increase in purchase prices. Moreover, there were zero reports of a decrease – the first time in the survey’s history – and consumer goods producers experienced a series-record high rate of inflation.

In an attempt to offset rising input costs, the majority of manufacturers (61%) increased their selling prices, compared to less than 1% making a reduction. Companies also reported buying inputs in advance to counteract expected future price increases, build-up safety stocks and guard against further supply chain disruption. That’s why purchasing activity increased for the 15th month in a row.

Finally, employment in the manufacturing sector also rose as companies looked to underpin production levels to clear order backlogs, prepare for future growth and address staff shortages.

Commenting on the latest survey results, Rob Dobson, Director at S&P Global, said: “The improved expansion of output at manufacturers, while positive in itself, failed to mask the continued headwinds buffeting the sector at the start of the second quarter. New business growth near-stalled as a slowdown in the domestic market was accompanied by a further deterioration in export orders. “Manufacturers and their clients are struggling as lockdowns in China and the Ukraine war exacerbate stretched global supply chains, the inflationary picture worsens and geopolitical tensions rise. Specific to the UK, Brexit represents an additional headwind, notably via lost EU customers, increased paperwork, customs checks and border delays. Business optimism has fallen to a 16-month low as companies become more cautious about the future outlook. “The inflationary situation is getting increasingly fraught. Input costs rose to the second-greatest extent in the 30-year survey history, leading to a record increase in factory gate selling prices. Around 85% of manufacturers reported higher purchasing costs, compared to no reports of a decrease, with several firms simply noting that ‘everything’ was up in price. Worryingly, consumer goods producers reported record increases in both output charges and input costs, which is likely to further constrain household spending and reinforce the cost-of-living crisis.”

Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply: “In spite of the softer rate of expansion in new business, the manufacturing sector held its ground in April, benefiting from work already in hand and recent easing of supply chain stresses. “However, it is difficult to see where ongoing growth will come from in the coming months as new order growth was the most sluggish in over a year. Higher costs and shortages took a bite out of potential opportunities with clients hesitating to place orders and Brexit obstacles weighing down as work from overseas shrank for a third month in a row. Not one business in the survey reported paying less for their materials in April and 85% of supply chain managers reported higher costs, leading to the second highest inflationary rise in PMI history. “Manufacturers are certainly feeling the pressure resulting in less optimism for the year ahead. With the lowest business expectations since December 2020, the global economy will need to pull a rabbit out of the hat to give manufacturers the leg up they need.”

Responding to the April Manufacturing PMI, Simon Jonsson, Head of Industrial Products at KPMG UK, said: “The sentiment among manufacturers remains positive, despite the challenges that they face becoming ever more complex as supply chains are disrupted and the spectre of inflation is foremost in everybody’s minds – businesses and consumers alike.

“These figures demonstrate strong resilience and an underlying drive to solve problems.  The challenge for manufacturers is to ensure continuity of supply in these very challenging times.  The opportunity continues to be how they innovate their industry 4.0 vision, making big data work hard on the factory floor.”

Maddie Walker, Accenture’s Industry X lead in the UK, said, “Manufacturers are showing extraordinary resilience with improved growth. However, the sharp surge in inflation and ongoing cost increases are reaching new highs not seen for decades, and will apply more pressure for manufacturers to run more efficiently to avoid spiralling costs being passed onto the consumer. Manufacturers are looking beyond immediate inflationary pressures by making decisions for the long-term to achieve growth. Continued investment in technology, like data analytics and robotics, will help to make supply chains more visible and unlock new ways to make products more effectively.”