Supply chain challenges constrain UK manufacturing growth in August

Port capacity issues, shipping delays, Covid restrictions and post-Brexit issues sap trade

Members of staff working on a car assembly line at the Vauxhall car factory in Ellesmere Port, UK. The supply chain issues have contributed to a decline in UK car production. Getty Images

British factory output in August grew at the weakest rate for six months as supply chain challenges affect manufacturers' recovery from the Covid-19 crisis, according to IHS Markit.

The IHS Markit/CIPS UK Manufacturing Purchasing Managers' Index fell to 60.3 last month from 60.4 in July. While the figure was still above the 50 mark that separates contraction and growth, the reading showed manufacturing growing at its slowest pace since February.

Rob Dobson, director at IHS Markit, said severe disruptions to supply chains and raw material shortages "eroded the growth momentum of UK manufacturing in August".

“Although solid gains in output and new orders were achieved, companies reported that production, delivery and distribution schedules were experiencing substantial delays,” he said.

“A wide range of factors contributed to the disruption, including port capacity issues, international shipping delays, the re-imposition of Covid restrictions at some key points in global supply networks and ongoing issues post Brexit.”

Global shipping problems, tight supplies of semiconductors and shortages of some goods such as motor vehicles have contributed to rising inflation in many countries – including Britain.

UK car production, for example, plunged to its lowest July level since 1956 as the global microchip shortage hit the industry.

The issue is hampering Britain’s post-lockdown recovery, with businesses suffering a sharp slowdown in August as activity was hampered by staff shortages and supply chain challenges.

A flash reading of the IHS Markit/CIPS composite Purchasing Managers’ Index, dropped for the third month in a row, while a separate survey of small and medium-sized manufacturers showed nearly all are struggling with cost pressures.

Stuart Cole, chief macroeconomist at stockbroker Equiti Capital, said the solid manufacturing PMI provided further signs that UK activity is slowing, as input shortages and delivery delays weigh on activity.

“Perhaps more worryingly, the survey also showed pricing pressures continuing to build, with both input and selling prices rising close to record highs as demand continues to outstrip supply,” he said.

“The willingness of consumers to accept higher final prices will concern the Bank of England as it suggests an element of sustainability creeping into what until now have been viewed as transitory inflationary pressures only and may be a sign that households are dipping into the surplus savings stock built up over the pandemic, effectively giving themselves a pay rise, to finance purchases.”

Meanwhile, the global challenges also constrained raw materials supplies in the eurozone despite manufacturing growth staying strong in August.

The easing of Covid restrictions is driving demand but many firms have reported logistical troubles, product shortages and a labour crunch.

IHS Markit's final manufacturing PMI fell to 61.4 in August from July's 62.8, while unemployment in the economic bloc dropped to 7.6 per cent in July from 7.8 per cent the month before.

"The falling unemployment rate, observed across nearly all member states, signals that many businesses are rehiring the workers they may have had to let go amid lockdowns,” said Josie Dent, managing economist at the Centre for Economics and Business Research.

"Separately, annual inflation in the eurozone for the month of August was estimated to stand at 3 per cent, in a flash estimate by Eurostat. This is up from 2.2 per cent inflation in July, and takes inflation to its highest level since November 2011, when it also stood at 3 per cent. Inflation was last higher than this in 2008, when the global financial crisis hit."