The UK’s manufacturing sector saw further growth of production, new orders and employment in December with British manufacturing PMI remaining above the neutral 50.0 mark now for 19 months.
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 report shows UK output rose across the consumer, intermediate and investment goods sectors during December, with the overall pace of expansion improving to a four-month high. The UK’s increased output was underpinned by rising intakes of new business as domestic market conditions continued to strengthen with export demand for UK capital goods rising at the quickest pace since August.
The UK’s manufacturing employment also 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.
However, capacity remained under strain. 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.
The report highlights how British companies have maintained a positive outlook at the end of 2021 and 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 and world supply chain issues.
However, it must be noted 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 also 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 also 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 global supply disruptions, raw material shortages and issues relating to COVID-19 also led to higher prices paid.
Commenting on the latest survey results, Rob Dobson, Director at IHS Markit, said:
“UK manufacturing production rose at the quickest pace in four months in December, supported by increased intakes of new work, efforts to reduce backlogs of work and higher employment. While the uptick in growth is a positive step, the upturn remains subdued compared to the middle of the year, as supply chain constraints and weak export performance constrained attempts to raise production further. 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.
“Although supply chains remain severely stretched, there are at least signs that the situation is stabilising, with vendor delivery times lengthening to the weakest extent for a year in December. This helped take some of the heat out of input price increases, but cost inflation remained sufficiently steep to necessitate the sharpest rise in factory gate selling prices on record. With restrictions and Omicron cases both rising, the growth and inflation backdrops could change again in the early part of 2022.”
Source: IHS Markit/CIPS Purchasing Managers’ Index