Manufacturing growth picks up despite rising inflation

April saw production growth accelerate in the UK manufacturing sector, however business confidence slumped to a 16 month low as inflationary pressures continued to build, with firms reporting that “everything” cost more last month.

Manufacturing production increased across the consumer, intermediate and investment goods industries, meaning the seasonally adjusted S&P Global / CIPS UK Manufacturing Purchasing Managers’ Index rose to 55.8. This is up from 55.2 in March and signals expansion for 23 successive months.

Companies linked higher production to increased intakes of new business, reduced delivery delays compared to earlier in the year and efforts to clear backlogs of work, and almost 55% of firms expect output to rise over the coming year.

However strong headwinds continued to buffet manufacturers during April as new order growth slipped to its weakest level in the current 15 month upturn, stymied by lower intakes of new export business and the impact on demand from rising selling prices. Input costs rose at the second strongest pace in the survey’s history as around 85% of companies registered an increase in purchase prices.

“The improved expansion of output at manufacturers, while positive in itself, failed to mask the continued headwinds buffeting the sector at the start of the second quarter,” said S&P Global director Rob Dobson.

“Manufacturers and their clients are struggling as lockdowns in China and the Ukraine war exacerbate stretched global supply chains, the inflationary picture worsens and geopolitical tensions rise. Specific to the UK, Brexit represents an additional headwind, notably via lost EU customers, increased paperwork, customs checks and border delays. Business optimism has fallen to a 16 month low as companies become more cautious about the future outlook.”

A broad range of inputs were reported to be up in price last month including chemicals, energy, food, freight, fuels, gas, metals, oil, plastics, polymers, timber, and transportation (air, land and sea). Several companies noted in their responses to the survey that “everything” cost more. 

As manufacturers acted to pass on rising costs, almost 61% of companies reported an increase in selling prices.

Despite these pressures, employment rose for the sixteenth month running as companies reacted to increased production and rising order backlogs, prepared for expected future growth and addressed staff shortages.

Purchasing activity also increased for the fifteenth consecutive month; firms reported buying inputs in advance of expected price rises, to build up safety stocks and to guard against further supply chain disruption.