The UK manufacturing sector had a mixed end to 2020, with clients bringing forward orders to beat the end of the Brexit transition period boosting inflows of new orders and pushing output higher.
However, port delays and other logistical disruptions meant that supply chain delays lengthened to one of the greatest extents in the history of the IHS Markit and Chartered Institute of Procurement & Supply (CIPS) Purchasing Managers’ Index (PMI).
Survey data collected from 4 to 18 December showed the index rising to a three-year high of in December.
The level of the PMI was mainly boosted by a marked lengthening of suppliers’ delivery times and substantial increase in stocks of purchases as part of preparations before the end of the transition period on 31 December.
Manufacturing output rose for the seventh month running in December, albeit to a lesser extent than a month ago.
Growth was registered across the consumer, intermediate and investment goods sectors. The steepest expansion was at intermediate goods producers, while consumer goods output returned to growth following back-to-back contractions.
December saw new orders rise at the quickest pace since August, as intakes improved from domestic and overseas sources.
Quantities of purchases rose at the third-fastest rate in the 29-year survey history, as companies built-up stocks. Inventories of purchases subsequently increased to the second-greatest extent in the survey history – only March 2019 saw a stronger increase.
Rob Dobson, director at IHS Markit, said it seems likely that this December boost will reverse in the opening months of 2021, making for a weak start to the year, noting that the data was collected prior to the border closures, which will have led to further logistics and production disruptions for many companies.
“Worryingly, the manufacturing sector was already beset by near-record supply-chain delays even prior to the closure of Dover-Calais shipping.
“Vendor lead times, a bellwether of supply-chain pressures, lengthened in December to a similar extent to during the first wave of the pandemic.”
Substantial disruption to supply chains was experienced by manufacturers in December, while job cuts were made for the eleventh consecutive month.
Vendor performance deteriorated to the third-greatest extent in the survey history, ‘beaten’ only by the increases in lead times seen during the first wave of the pandemic.
Raw material shortages, port delays, freight capacity issues and Brexit concerns all contributed to supply-chain disruption, according to IHS Markit.
Average input costs rose at the quickest rate in two-and-a-half years in December, reflecting input shortages, vendor price rises, increased transportation costs, Brexit uncertainty and exchange rate factors. Manufacturers responded by increasing output charges.
Business optimism eased in December, with 56% of manufacturers forecasting output to rise over the next 12 months – compared to 61% in November.
Positive sentiment was linked to ongoing economic recoveries, hopes of a lesser impact from Covid-19, reduced uncertainty following the completion of Brexit and planned strategic investments.
Duncan Brock, group director at CIPS, commented: “Bunged up ports caused backlogs to rise to levels not seen for a decade and optimism for the year ahead dropped to a six-month low, as the challenges for manufacturers just kept coming.
“After a severely turbulent year, UK makers still have a great deal to worry about.
“Job numbers continue to fall, and material shortages have resulted in the highest cost inflation since 2018 – the sector is holding its breath until the terms of the new deal are fully understood and whether new business can be sustained in the same way in a post-Brexit marketplace.”