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Record growth for manufacturing but fears over inflation

UK manufacturing grew at an unprecedented rate in May as pent-up demand was released, so much so that supply chains are struggling to keep up - causing record inflation on material prices.

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The sector has been recovering rapidly in 2021, but figures in May reached whole new levels. According to the monthly UK Manufacturing Purchasing Managers’ Index (PMI), new orders rose at the quickest pace since records began nearly three decades ago.

Production also rose at one of the quickest rates ever seen, with record gains in new business as domestic and overseas demand continued to return. A month-on-month increase in staffing levels also broke records. Overall, the PMI score of 65.6 (above 50 marks growth) is the highest ever recorded.

Over 70 per cent of the manufacturers surveyed for the PMI forecast that their production would be higher in a year’s time, compared to only 3 per cent expecting a decline.

However, the flip side of these unprecedented growth rates is huge pressure on capacity and supply. According to the PMI, backlogs of work also rose the highest level since records began and average lead times from suppliers lengthened to near-record levels.

Subsequent shortages of raw materials have increased costs as a result, leading to a knock-on impact to selling prices that has caused a record rate of price inflation. In response, many manufacturers are increasing purchasing activity to build up safety stocks and guard against further price rises.

Electronics, plastics and metals are thought to be particularly affected, although there are also reports of global shortages and rising prices for other key raw materials, including timber.

Duncan Brock, Group Director at the Chartered Institute of Procurement and Supply (CIPS), which helps to compile the PMI, said:

“The march of the makers has turned into a sprint as the blocks of lockdowns have been removed, but we haven’t seen this level of price inflation on materials for decades.

“Supply chain managers anticipate a continuing squeeze on deliveries and are forward buying and building stocks, so we may not have seen prices peak yet. This means bigger inflationary pressures for the wider economy and the country’s place in international trade as prices charged also rose at record rates.”

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