UK manufacturing expands at fastest pace since April 2019, but supply chain disruption grows due to coronavirus

Growth of manufacturing output accelerated to a ten-month high in February, as domestic demand continued to recover on the back of reduced political uncertainty.

However, supply-chain disruptions were rapidly emerging as the coronavirus outbreak led to sizeable raw material delays, rising input costs, and increased pressure on stocks of purchases.

The seasonally adjusted IHS Markit/CIPS PMI rose to 51.7 in February, up from 50.0 in January, but below the earlier flash estimate of 51.9.

The PMI posted above the 50.0 neutral mark for the first time in ten months.

Manufacturing output increased at the fastest pace since April 2019, as growth strengthened in both the consumer and intermediate goods sectors, while in contrast, the downturn at investment goods producers continued.

Overseas demand decreased for the fourth successive month, with companies reporting reduced new work intakes from Asia due to the coronavirus outbreak.

There were also reports of efforts to re-route supply chains away from the UK following Brexit, contributing to weaker demand from the EU.

The effects of the coronavirus outbreak had a noticeable impact on supply chains during February.

Average vendor lead times lengthened to the greatest extent since July 2018, while the eight-point drop in the level of the seasonally adjusted Suppliers’ Delivery Times Index was the largest in the 28-year survey history.

Manufacturing employment resumed its downward trend in February, falling for the tenth time during the past 11 months.

The decline was centred on the investment goods sector, as jobs growth was seen at both consumer and intermediate goods producers.

Rob Dobson, Director at IHS Markit, said: “The UK manufacturing sector remained in recovery mode in February, as reduced levels of political uncertainty following last year’s general election translated into further growth of output and new orders.”

“Supply-chain disruptions were emerging rapidly, however, as the coronavirus outbreak led to a substantial lengthening on supplier lead times, raw material shortages, reduced inventories of inputs, rising input costs, and reduced export orders from Asia and China in particular.”

“The expansion of output was nevertheless the fastest since April 2019, as a stronger demand from the domestic market led to the steepest increase in new work in 11 months.”

“Business optimism also improved to a nine-month high, but the upturn remains confined to the consumer and intermediate foods sectors, as the downturn at investment goods producers continued.”

“This suggests that business confidence levels have yet to recover sufficiently to support a sustained rise in capital spending. With supply-chain headwinds rising, and trade negotiations with the EU starting, it remains to be seen whether the recovery can stay on course during the coming months.”

Duncan Brock, Group Director at the Chartered Institute of Procurement and Supply, said: “The highest level of new orders in almost a year put the manufacturing sector on a slightly firmer footing in February.”

“Optimism rode high, as domestic clients set aside major fears about the economy, Brexit, and political uncertainty to get production moving again.”

“Companies dependant on instructions from overseas however, were not so lucky. European and Asian clients held back on contracts citing continuing Brexit fears and now the potential acceleration in disruption caused by the coronavirus.”

“As factories closed and workforces stayed away in China, client hesitation was fast and spreading into other regions of the world.”

“Though overall activity in the sector did pick up the pace in February, the weakest performance by suppliers since July 2018 as measured by the suppliers’ delivery times index showed a startling deterioration in the performance of global supply chains.”

“This domino effect resulted in shortages of raw materials and the highest input price inflation since June, as not all supplies could be redirected to suppliers who were able to fulfil requests.”

“With no clear end to the disruption in sight, the gains made by manufacturing at the beginning of the year could soon be lost. A vortex of poor UK weather conditions, underlying remaining Brexit fears, and now the coronavirus will strip the sector of any significant wins if supply chains continue to disintegrate in the coming months.”