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Summary
- The UK manufacturers reported strong growth in May and higher levels of business confidence.
- The growth was driven by an easing of Covid-restrictions and a robust vaccination strategy.
- At the same time, inflationary pressure has started building up in the economy, and consumers might see higher prices in the near-term.
The IHS Markit/CIPS UK manufacturing purchasing managers index (PMI) shot up to a value of 65.6 in May from 60.9 in April, boosted by the easing of lockdown related restrictions and the ongoing vaccination programmes. It was the highest manufacturing PMI reading since the survey started in 1992.
Moreover, the sector’s production levels expanded at one of the highest rates in the PMI’s history, driven by a jump in domestic as well as overseas demand. It is also noteworthy that the British manufacturing sector’s economic activity has been growing for each of the past 12 months.
In fact, the sector was beaming with optimism during April 2021 as well, when the PMI rose to its highest value since the month of July 1994. However, the month saw supply-chain delays and input shortages, leading to lengthening of the vendor lead times.
A PMI reading above 50 is indicative of expansion in the sector’s activity, while one below 50 denotes contracting output.
Also Read: UK services sector records highest reading since 2013
Export orders
Export orders in May for the British manufacturing sector jumped at the fastest rate on record, mainly driven by large sized companies, said the IHS Markit/CIPS survey. Higher export demand was observed from the European Union, China and the US.
Also Read: Lloyds Recovery Tracker Records Output Growth Across Sectors
New orders, employment and input costs
The total new orders, employment and input, cost inflation also rose in the manufacturing sector for the month of May. Hiring rose as the sector added staff to cater to the pent-up demand and finish the backlog in work. The main reason for a rise in input cost was the supply chain disruption.
As the demand outstripped supply, shortages of many items were noted, such as that of raw materials including metals, plastics and electronics along with transportation delays. Input supplies were also restricted due to port issues, cross-border Covid restrictions, and other post-Brexit challenges.
These factors collectively indicated that inflationary pressure has started building up in the economy, and consumers might see higher prices in the near-term as the price-rise is passed on. The survey reported that the supplier-delivery time had expanded to one of the greatest extents on record.
As the purchasing activity picked up momentum in the sector, inventory volumed jumped while the stocks of finished goods dropped.
Earlier, the Bank of England had also said that it was watchful of any short-term trends in a rise in inflation as the prices of certain goods were on the rise. It had predicted the British economy to grow by 7.25 per cent this year.
The businesses surveyed linked the high monthly growth in new orders to increasing business confidence and a lesser number of problems related to the coronavirus pandemic. In fact, over 70 per cent of the firms surveyed expected the sector’s production volumes to be higher in one year's time.
Also Read: FTSE 100 Makes Positive Start Reacting to Upbeat OECD Projection for The UK Post-Covid
