Growth for UK manufacturing, but Covid-19 disrupts supply chains

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Although growth of manufacturing output accelerated to a ten-month high in February, the outbreak of Covid-19 is leading to supply chain disruptions.

The ongoing coronavirus outbreak has led to raw material delivery delays, rising input costs and increased pressure on stocks of purchasers.

According to the seasonally adjusted IHS Markit/CIPS Purchasing Managers’ Index (PMI) manufacturing output increased at the fastest pace since April 2019, as growth strengthened in both the consumer and intermediate goods sectors. In contrast, the downturn at investment goods producers continued.

The main factor underlying output growth was improved intakes of new work. Business optimism also strengthened, hitting a nine-month high, reflecting planned new investment, product launches, improved market conditions and a more settled political outlook.

February saw the level of new work received expand for the second successive month. The rate of increase accelerated to an 11-month high, as reduced levels of political uncertainty and successful promotional activities aided a further recovery in domestic market strength.

There were also some reports of manufacturers receiving orders redirected from clients experiencing supply-chain issues.

Less positive news was provided by the trend in new export business, with overseas demand decreasing for the fourth successive month in February.

Companies reported reduced new work intakes from Asia (especially China) due to the Covid-19 outbreak. There were also reports of efforts to re-route supply chains away from the UK (following Brexit) contributing to weaker demand from the EU.

The effects of the COVID-19 outbreak had a noticeable impact on supply chains during February. Average vendor lead times lengthened to the greatest extent since July 2018, while the eight-point drop in the level of the seasonally adjusted Suppliers’ Delivery Times Index was the largest in the 28-year survey history. Recent storms and flooding in the UK also had an impact.

Delays in the delivery of inputs and companies burning through Brexit safety stocks led to increased pressure on inventories. Stocks of purchases fell at the fastest rate in over seven years. Stocks of finished goods and purchasing activity were also lower.

Shortages of certain raw materials led to increased input prices, part of which was passed on to clients through higher output charges.

Manufacturing employment resumed its downwards trend in February, falling for the tenth time during the past 11 months. The decline was centred on the investment goods sector, as jobs growth was seen at both consumer and intermediate goods producers.

“The UK manufacturing sector remained in recovery mode in February, as reduced levels of political uncertainty following last year’s general election translated into further growth of output and new orders,” said Rob Dobson, Director at IHS Markit, which compiles the survey.

“Supply-chain disruptions were emerging rapidly, however, as the Covid-19 outbreak led to a substantial lengthening of supplier lead times, raw material shortages, reduced inventories of inputs, rising input costs and reduced export orders from Asia and China in particular.

“The expansion of output was nonetheless the fastest since April 2019, as stronger demand from the domestic market led to the steepest increase in new work in 11 months. Business optimism also improved to a nine-month high. However, the upturn remains confined to the consumer and intermediate goods sectors, as the downturn at investment goods producers continued.

“This suggests that business confidence levels have yet to recover sufficiently to support a sustained rise in capital spending. With supply-chain headwinds rising, and trade negotiations with the EU starting, it remains to be seen whether the recovery can stay on course during the coming months.”