Manufacturing Activity Rises as Supply Bottlenecks Ease

Output and jobs in the manufacturing sector continued to grow at the end of last year as supply chain disruptions began to ease.

The rise in the output index to 53.6 in December, from 52.7 in November, showed that the spread of the Omicron coronavirus variant had not yet hit the sector’s recovery.

The IHS Markit/CIPS purchasing managers’ index for UK manufacturing measured 57.9 in December. The figure, a slight drop from a three-month high of 58.1 in November but above the flash estimate at 57.6, is thought to have been weighed down by a clearing of production backlogs. The statistics were collected in a 14-day period from December 6.

The prices measure rose to a record high of 74.3 in December, up from 74 the previous month, as manufacturers passed on the burden of soaring energy prices to their customers. Consumer prices are expected to rise further in the first few months of 2022 before peaking at about 6 per cent in April.

Employment within the sector increased for a twelfth consecutive month in December and the rate of jobs growth remained close to the three-month high in November.

The impact of the new Covid-19 variant will be felt this month, when employees increasingly fall sick or are isolating and as global supply chains come under renewed stress, according to Samuel Tombs, at Pantheon Macroeconomics, the consultancy. “Another month of strong employment growth and an improvement in suppliers’ delivery times enabled growth in manufacturing output to speed up and work backlogs to increase at the slowest rate since February,” he said.

“Supply chain disruptions, however, likely will worsen this month, given that Brexit customs checks have been bolstered and Omicron likely will lead to new factory closures in Asia.”

Simon Jonsson, head of industrial products at KPMG UK, said that inflation across factory inputs, amplified by trade frictions, was affecting productivity. “Manufacturers need to focus on how they can absorb or pass on these inflationary pressures,” he said. “In 2022, productivity improvements will be key. Inflationary pressures may be the catalyst for accelerating technology investments, both on the factory floor and in the back-office.”

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Manufacturing activity rises as supply bottlenecks ease