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Manufacturer optimism and employment on the up

Business optimism in the manufacturing sector rose to a six-and-a-half year high in February, but growth continues to be constrained by rising costs and global supply chain disruptions.

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The IHS Markit/CIPS UK Manufacturing Purchasing Managers’ Index (PMI) for February showed a continued upturn in fortunes for the sector, which has now experienced growth for nine months in a row.

Nearly two thirds (63 per cent) of businesses in the survey reported expectations of increased output in one year’s time - the highest figure for 77 consecutive months. The positive sentiment was linked to the continued recovery from the pandemic, the reopening of the global economy and reduced uncertainties around EU Exit,

Some companies reported improved demand from several overseas markets, including the US, Asia, Scandinavia and - to a lesser extent - mainland Europe.

Employment in the sector also rose for the second month running and at the quickest pace since June 2018, reflecting the ongoing economic recovery and anticipations of demand growth in future.

Despite the good news, the manufacturing sector still faces significant challenges in the short term. Output in February rose at the slowest pace recorded over the past nine months of growth, with ongoing complications and shipping difficulties related to EU Exit restricting growth. The consumer goods sub-sector continued to experience a downturn as a result.

In addition, input cost inflation accelerated at the fastest rate for over four years, driven primarily by supply chain disruption and raw material shortages. Nearly two thirds (64 per cent) of firms reported higher purchase prices, with a similar figure (59 per cent) experiencing delivery delays.

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Commenting on the survey results, Rob Dobson, Director at IHS Market, which compiles the PMI, said:

“The UK manufacturing sector was again hit by supply chain issues, COVID-19 restrictions, stalling exports, input shortages and rising cost pressures in February.

“With current constraints likely to continue for the foreseeable future, pressure on prices and output volumes may remain a feature during the coming months. That said, improved domestic demand as lockdown restrictions ease and a further rise in manufacturers' optimism are reasons to hope brighter times are on the horizon, and have already supported a modest rebound in staffing levels since the turn of the year.”

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