UK Manufacturing PMI indicates slowest growth since February 2020

Highlights 

• UK manufacturing sector witnessed the slowest growth rate since February of 2021
• Growth slowed due to dismal pace in consumer and intermediary products
• Manufacturers are also struggling to recruit appropriately skilled workforce
• Capacity issues with clients, shrinking size of new export orders added to de-growth

Manufacturing sector in the United Kingdom has managed to report a growth for the 16th straight month, but has witnessed the slowest growth rate since February of 2021 following the unending troubles due to malfunctioned supply chain systems, repeated delays in the orders, invariably increasing costs of labour and material, alongside a subdued growth in new orders.

With the manufacturing PMI growth returning to February levels, it apparently indicates that the industries have scaled back their pace of expansion to the time when most of the manufacturers were operating under a strict operative environment following the third national lockdown and other pandemic-induced restrictions.

According to the data compiled by the IHS/CIPS, the Manufacturing (Purchasing Managers’ Index) PMI in the UK slipped to a seven-month low of 57.1, subsequent to an upward revision from the preliminary estimate of 56.3. The seasonally adjusted PMI recorded a reading of 60.3 in August of 2021.

Also Read | Pub owners reel in losses: Should you hold on to these 2 stocks?

It is quite evident that the businesses are able to operate on a larger scale but the operative hurdles have disturbed the overall processes, leading to a dampened growth.

Enterprises across the UK are combating the long-ranging aftereffects of supply chain flaws as manufacturers, already reeling under the pressure of high prices of raw materials, are now facing delays in the supplies that have partly derailed the growth trajectory, at a time when retailers are operating with partly-filled shelves and petrol stations running out dry.

Even after the unconditional obstacles, the manufacturing production has improved for the 16th consecutive month in September, making it one of the key contributors towards the national economic growth. Including September’s moderation, this is the fourth straight time when the manufacturing PMI has fallen.

As per the survey manager, the overall growth has slowed due to dismal pace across investment goods sector, intermediary products, as well as the consumer segment. The considerable rise in the production volumes of medium-to-large scale producers have been counterbalanced by the continued downturn across small firms as corporations with lower scale of operations remain highly vulnerable to the external market factors including the supply chain issues, as well as the capacity constraints.

Also Read | AO World (AO) & Currys (CURY): Should you buy these mid-cap retail stocks?

The manufacturing production has been collectively disrupted by delayed supplies, longer supplier lead times, unavailability of raw materials and capacity limitations including the time taken to deploy adequate numbers of skilled people and the persistent problem of staff shortfall, as a result of which the prices of raw materials have advanced further.

According to the historical data points, the average vendor lead times have increased to one of the greatest extent. The potential delays in the air, sea and land freight and hurdles in the cross-border trading activity due to Brexit-related disruptions have materially impacted the manufacturing production with the businesses planning to normalise the situation that can help in ramping up the production ahead of the upcoming holiday season.

Other than these, the continuous dearth of drivers responsible for transporting the goods from distributors to retailers, increased waiting time at the ports, alongside the extended aftermath of Covid-19 pandemic have taken a toll on the manufacturing sector.

Also Read | 500-2000% return in a year! 2 blockchain stocks to buy

A subdued scale of production could significantly impact the prospective GDP growth in the upcoming quarters if businesses remain unable to resurrect the manufacturing lines. This could be more devastating for businesses, at a time when consumers are more willing to spend as compared to any other time in the 18-month-long course of the coronavirus pandemic so far.

A downcast growth in the new business in the previous month also shackled the efforts to increase the output as total new orders grew at the slowest rate since February of the present calendar year. The primary reason for the drop in order growth can be attributed to the first-ever contraction in the new export work in the last eight months, coupled with the moderate increase in the intakes from domestic clients.

Capacity issues with the clients, the shrinking size of new export orders due to shipping-related challenges and order cancellations due to long lead times have been collectively responsible for a subdued manufacturing growth in September.

Also Read | What happens when an energy supplier goes bust

Alongside the ongoing difficulties of an industry-wide shortage of staff, the domestic manufacturers are also struggling to recruit appropriately skilled workforce during the month of September. The condition is likely to subside in October, as there will be slightly more skilled people who will remain readily available for joining the businesses following the termination of the furlough scheme.

While the pace of job creation hitting the weakest rate since January of this year, there was a growth in the number of jobs for the ninth straight month as businesses remain on an expansion mode. Surprisingly, the companies with small scale and sizes reported a cut in jobs growth for the first time in the last eight months, whereas the medium-to-large scale corporations saw a slower-than-expected increase in job creation.

The manufacturers registering higher employment have typically scaled up the number of workforce to meet the desired requirement of production, increasing the capacity to meet the upcoming surge of orders in the near future when the consequences related to Covid-19 and Brexit subside. The substantial improvement in the employment activity in the manufacturing sector has the as businesses look forward to finishing the rising amount of backlogs.

Also Read | UK gas supply crisis: Are these 2 energy stocks a buy?

Of the total domestic manufacturers, more than 30% of the companies are underway with expansion plans, while the outstanding business increased at one of the fastest rates since the records were compiled.

Nonetheless, the outlook for the manufacturing industry remains resilient for the upcoming months after September as more than 62% of the corporations have anticipated that their manufacturing output would increase in the forthcoming 12 months as opposed to only 6% of the enterprises foreseeing a possibility of contraction.

The positive outlook for the manufacturing industry primarily depends on the expected recovery in domestic, as well as global markets, reduced challenges of Covid-19, maximised vaccine blanket that can ensure hassle free transports, planned structure for new product launches, lower difficulties with the supply chain & logistics division and alleviating concerns of Brexit.

As a result of acute supply chain crunch with almost every other business, the companies are now building contingency stocks that are effectively driving up the input inventories.