UK manufacturing growth slows as costs rise

·3 min read
UK manufacturing
The flash UK manufacturing output index fell to 50.6, the weakest reading since February, and close to stagnation. Photo: Colin McPherson/Corbis via Getty Images

Factory output growth in Britain was hit by supply shortages in October, with manufacturers signalling another slowdown due to a lack of staff and material.

Companies across the UK were also hit by a record rise in costs, IHS Markit said on Friday.

Stronger wage pressures and the worsening global supply chain crisis contributed to the fastest rate of input price inflation at UK private sector companies since its index began in January 1998.

Survey respondents often cited rising fuel, transport and energy bills, alongside steep price increases for items in short supply around the world (especially semiconductors and other electronics components).

Output growth at factories only grew marginally during the period. The flash UK Manufacturing Output Index fell to 50.6, the weakest reading since February, and close to stagnation. Any reading above 50 indicates growth.

Manufacturing PMI fell in October. Chart: IHS Markit
Manufacturing PMI fell in October. Chart: IHS Markit

About 64% of UK manufacturers reported worsening supplier delivery times in October, while only 1% saw an improvement. They recorded a particularly steep rise in unfinished work, with the rate of backlog accumulation the fastest since June, the data showed.

They also said they were struggling to meet customer demand, and blamed capacity constraints and disruptions at their plants, as well as falling export sales.

However, the UK recovery did gain momentum in October, with a robust and accelerated increase in private sector business activity, growing to its strongest for three months.

Watch: What is inflation and why is it important?

Survey respondents widely reported buoyant business and consumer spending due to the roll back of pandemic restrictions.

IHS Markit's overall flash index jumped to 56.8 this month, the highest since July, and up from 54.9 in September. This was also above expectations of a reading of 54.

Service sector activity stood at 58.0, outpacing manufacturing production by the widest margin since February 2009.

“The UK economy picked up speed again in October, but the expansion is looking increasingly dependent on the service sector, which in turn looks prone to a slowdown amid the recent rise in COVID-19 cases,” Chris Williamson, chief business economist at IHS Markit, said.

“Growth is also being accompanied by an unprecedented rise in inflationary pressures, which will inevitably feed through into higher consumer prices in coming months.”

Read more: UK consumer confidence drops for third month in a row

He added: “The news comes at a time when the Bank of England is already leaning towards hiking interest rates to safeguard against inflationary expectations becoming entrenched. The record readings of the PMI survey’s price gauges will inevitably pour further fuel on these inflation worries and add to the case for higher interest rates.

Meanwhile, business activity growth in the eurozone plunged to a six-month low in October.

The IHS Markit survey came it at 54.3, down from 56.2 the previous month, marking the worst level of growth since April.

The drop was also driven by manufacturing as supply troubles weighed on factory output, however, the service sector, similarly to the UK, posted a decline.

Watch: Economist: Supply chain crisis is here to stay for 'quite some time'

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