UK manufacturing input and selling prices rise at record rates

Posted on: July 5th, 2021 by Phil

The final IHS Markit/CIPS Purchasing Managers’ Index® dipped slightly to 63.9 in June, down from May’s record high of 65.6. Nevertheless, the UK Manufacturing PMI has recorded growth for 13 successive months. 

Manufacturing remained in a strong growth phase in June, with rates of expansion in output, new orders and employment among the best seen during the near 30-year survey history. Industry was still beset by supply-chain and distribution difficulties, however, leading to longer vendor lead times and disruption to production schedules. Manufacturing increased at marked rates across the consumer, intermediate and investment goods industries. Growth was supported by strong intakes of new business, which rose at a rate close to May’s record high. Improved demand was linked to continued easing of coronavirus restrictions within the UK.
New export orders also increased again, with strong inflows from mainland Europe, the US and Asia. 

Average input costs rose at the fastest pace in the survey history, with 77% of manufacturers reporting an increase. A wide range of raw materials experienced cost increases, including chemicals, electronics, energy, food products, metals, plastics and timber. Cost pressures were exacerbated by demand outstripping supply, logistic delays and raw material shortages. The pass-through of higher input costs led to the fastest increase in selling prices since charges data were first collected in November 1999. Record increases were seen at consumer, intermediate and investment goods producers.
Vendor lead times meanwhile lengthened to an extent only surpassed during the COVID-19 lockdown in April 2020. Part of the lengthening reflected increased demand for raw materials, as purchasing activity rose at a rate close to May’s record high. Companies linked increased input buying to rising demand and efforts to protect against supply-chain delays and input shortages.

Increasing buffer stocks meant raw material inventories rose at the quickest pace year-to-date and to one of the greatest extents in survey history. Stocks of finished goods declined sharply as manufacturers fulfilled sales from inventories due production schedule disruption caused by supply-chain delays.

Employment rose at a rate close to May’s record high. Jobs growth reflected capacity issues – highlighted by near-record accumulation of work backlogs – and optimism among manufacturers. Almost 63% of companies expect production to rise over the coming year, reflecting reduced uncertainty regarding COVID-19 and Brexit and improving global market conditions.

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