Manufacturing sector offers optimism for year ahead

The manufacturing sector ended 2021 with further growth of production, new orders and employment but logistic disruptions and staff shortages hindered the pace of expansion.

manufacturing sector
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These are the findings of IHS Markit/CIPS Purchasing Managers’ Index (PMI), which dipped slightly in December to 57.9 compared to 58.1 in November. A score of more than 50 indicates an expansion and the PMI has remained above the 50 mark for 19 months.

Output rose across the consumer, intermediate and investment goods sectors during December, with the overall pace of expansion improving to a four-month high. Increased output was underpinned by intakes of new business as the domestic market continued to strengthen.

Overall export figures remained negative for the fourth consecutive month although export demand for UK capital goods rose at the quickest pace since August. Manufacturers indicated that logistic issues, Brexit rules and the threat of further COVID restrictions (in the UK and abroad) had struck export demand at the end of the year.

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Manufacturing employment increased for the twelfth successive month in December, with companies linking this to meeting improved demand, rising backlogs and efforts to address staff shortages.

In total, 63 per cent of companies predict that production will increase over the next 12 months, compared to six per cent anticipating contraction. Optimism reflected expectations of renewed global economic growth, planned investment and hopes for less disruption caused by COVID-19, Brexit and supply chain issues.

Commenting on December’s manufacturing sector figures, Maddie Walker, Accenture’s Industry X lead in the UK, said, “With strained supply chains and soaring costs, sustained output growth is reason to be optimistic that manufacturers can face the tailwinds of 2022.

“While the recent interest rate rise may help to curb inflation, costs will likely rise before they fall, and ongoing uncertainty will make 2022 a similarly unpredictable year. However, investments in technology, including more automation, are keeping the factory lights on and will help manufacturers to remain resilient.”

Echoing these sentiments, Simon Jonsson, head of Industrial Products at KPMG UK, said: “It is pleasing to see that demand for manufactured goods remains robust, but inflation across a broad range of factory inputs, plus trade friction, is biting into productivity.

“Supply chain challenges persist for many manufacturers, who will be hoping the impacts of Omicron don’t worsen the situation further.

“In the face of this challenge, manufacturers need to focus on how they can absorb, or pass on, these inflationary pressures.  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.”