PMI: Output growth slows at start of fourth quarter as supply difficulties provide severe headwind

1 min read

The manufacturing upturn slowed further at the start of the fourth quarter, as output growth was constrained by rising supply chain disruption, staff shortages and declining intakes of new export work, according to the latest seasonally adjusted IHS Markit/CIPS Purchasing Managers’ Index (PMI).

The PMI posted 57.8 in October, up from 57.1 in September, rising for the first time in five months. Although the PMI was boosted by improved growth of new orders and employment, alongside a steeper rise in stocks of purchases and lengthier vendor lead times, a further slowdown in output growth held back the headline index.

Manufacturing production rose only marginally and at the slowest pace for eight months. Companies reported that supply chain delays alongside shortages of raw materials, staff and certain skills had contributed to slower output growth. Lower intakes of new export work also had an impact on production volumes. New export business fell, albeit slightly, for the second successive month.

Companies reported that some overseas clients were cancelling or postponing orders due to longer lead times caused by port delays and freight capacity issues. The domestic market held up better in comparison, offsetting some of the weakness in overseas demand.

Overall new order intakes rose at a slightly quicker pace, linked to economic growth and clients increasing (or bringing forward) purchases to avoid expected supply chain delays and further price rises in coming months.

UK manufacturers maintained an optimistic outlook during October, with almost 62% expecting their level of output to increase over the coming year. That said, the overall degree of positive sentiment dipped to an eight-month low.

Confidence was attributed to stronger global and domestic economic conditions, reduced disruption from Brexit, Covid-19 and supply-chain issues and also planned investment spending (including in automation).

Continued optimism at manufacturers, alongside signs of demand growth stabilising, encouraged stronger job creation during October. Employment rose for the tenth month running, with increases signalled at small, medium and large-sized enterprises.

Companies linked increased workforce numbers to higher output, recruitment campaigns, the replacement of leavers and rising backlogs of work. That said, there were also reports of ongoing staff shortages and difficulties in recruiting for certain skills.

Work-in-hand rose at the third-fastest pace on record (beaten only by May and June of this year). Input price inflation accelerated and remained among the highest seen in the survey history, with companies reporting a vast array of inputs as up in price. This fed through to output charges which rose to the greatest extent on record.