UK recovery ‘running out of steam’ as retail sales fall; supply crisis hits factory growth – business live

UK companies have been hit by a record jump in costs, as output growth at Britain’s factories almost stalls amid the supply chain crisis.

Rising wages and the worsening global supply chain crisis drove costs up at a record pace — input price inflation hit the fastest rate since the index began in January 1998.

Output growth at factories only grew marginally. The flash UK Manufacturing Output Index fell to 50.6, the weakest reading since February, and close to stagnation, data firm Markit reports.

Manufacturers said they were struggling to meet customer demand, and overwhelmingly blamed capacity constraints and disruptions at their plants amid severe staff and raw material shortages, as well as falling export sales.

Around 64% of UK manufacturers reported worsening supplier delivery times in October, while only 1% saw an improvement.

Stocks of finished goods were depleted at a rapid pace as goods producers struggled to keep up with customer demand.

Faced with shortages, firms built up their stockpiles of raw materials and parts at the fastest rate since December 2020.

But overall, the survey shows a pick-up in growth this month, led by the service sector.

Companies reported stronger demand due to the roll back of pandemic restrictions (the problem, though, was meeting that demand).

IHS Markit PMI™

🇬🇧 Latest flash data for the UK signalled a sharp rise in business activity with the #PMI at a 3-month high (56.8). The expansion was led by the service sector while severe staff and material shortages weighed on output growth at manufacturers. Read more:

October 22, 2021

Here’s the details (any reading over 50 shows growth)

  • Flash UK Composite Output Index October: 56.8, 3-month high (September final: 54.9)
  • Flash UK Services Business Activity Index October: 58.0, 3-month high (September final: 55.4)
  • Flash UK Manufacturing Output Index October: 50.6, 8-month low (September final: 52.7)
  • Flash UK Manufacturing PMI October: 57.7, 2-month high (September final: 57.1)

UK flash PMI to October

Photograph: IHS Markit

Chris Williamson, Chief Business Economist at IHS Markit, said the UK economy picked up speed again in October, despite the slowdown in factory output.

However, the expansion is looking increasingly dependent on the service sector, which is at risk of slowing as Covid-19 cases rise.

Growth is also being accompanied by an unprecedented rise in inflationary pressures, which will inevitably feed through into higher consumer prices in coming months. “The news comes at a time when the Bank of England is already leaning towards hiking interest rates to safeguard against inflationary expectations becoming entrenched.

The record readings of the PMI survey’s price gauges will inevitably pour further fuel on these inflation worries and add to the case for higher interest rates.

However, the economic growth signals from the PMI remain less convincing from a policy standpoint. The service sector is clearly in something of a sweet spot as the UK has seen more people’s lives and livelihoods return closer to normal. Some of the growth momentum will therefore fade as this rebound passes.

Moreover, rising Covid-19 case numbers pose a downside risk to growth in the coming months, potentially deterring some services-oriented activity among consumers in particular and potentially leading to the renewed enforcement of health restrictions as winter draws in.”


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