Manufacturing upturn continues at end of 2021

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​The UK manufacturing sector saw further growth of production, new orders and employment at the end of 2021, according to the latest IHS Markit/CIPS Purchasing Managers’ Index (PMI).

The manufacturing sector saw further growth of production, new orders and employment at the end of 2021. Although a slight easing in supply chain delays helped lift output volumes and take some of the heat out of input price increases, logistic disruptions and staff shortages were nonetheless still stymieing the overall pace of expansion.

The seasonally adjusted IHS Markit/CIPS Purchasing Managers’ Index (PMI) rose to 57.9 in December, little changed from November's three-month high of 58.1. The PMI has remained above the neutral 50.0 mark for 19 months.

Output rose across the consumer, intermediate and investment goods sectors during December, with the overall pace of expansion improving to a four-month high. Increased output was underpinned by rising intakes of new business, as domestic market conditions continued to strengthen. The trend in new export business remained negative, however, as inflows of new work from overseas dropped for the fourth month in a row.

This mainly reflected a steep decrease at consumer goods producers. In contrast, export demand for UK capital goods rose at the quickest pace since August. Manufacturers indicated that logistic issues, Brexit difficulties and the possibility of further COVID restrictions (at home and overseas) had all hit export demand at the end of the year.

Manufacturing employment increased for the twelfth successive month in December, with the rate of jobs growth staying close to November's three-month high.

Companies linked this to meeting improved demand, rising backlogs of work and efforts to address staff shortages. Capacity remained under strain, however. This was highlighted by a further increase in outstanding business, although the pace of expansion in work-in-hand volumes eased sharply to its lowest since February.

Companies maintained a positive outlook at the end of 2021. The majority of firms (63%) forecast that production would increase over the coming 12 months, compared to only 6% anticipating a contraction.

Optimism reflected expectations of renewed global economic growth, planned investment and hopes for less disruption caused by Covid-19, Brexit and supply chain issues. Inflationary pressures remained elevated in December.

The rate of increase in factory gate selling prices accelerated to a fresh series-record high, as companies passed on (at least in part) rising costs to their customers. December saw a further substantial increase in average input prices, with the rate of inflation staying among the steepest seen in the survey history.

There were reports of higher costs for chemicals, electronics, energy, food products, metals, timber and wood. Freight, shipping and air transportation costs were also higher, while ongoing supply disruptions, raw material shortages and issues relating to Brexit and COVID-19 also led to higher prices paid.