Positive manufacturing sentiment increases

Published: 13 August, 2021

Although the manufacturing recovery is continuing and positive sentiment is widespread, with SME manufacturing output growing at the fastest pace on record (since October 1988) in the three months to July, according to the CBI’s quarterly SME Trends Survey, there are increasing concerns that the supply-side constraints on output are growing with the availability of skilled labour as a factor likely to limit output. According to the latest CBI’s quarterly SME Trends Survey, SME manufacturers also continue to report severe cost and price pressures. Average costs rose at their quickest pace on record in the three months to July. Additionally, firms reported record domestic price growth, and the fastest increase in export prices in four years. Both costs and export price growth are expected to slow somewhat next quarter, while domestic price growth is anticipated to pick up further according to CBI predictions.

In addition, the impact of ‘pinging’ has had a detrimental effect to the manufacturing sector at a critical time. Make UK says that the situation is highlighted by the results of its recent survey showing the widespread impact of an increasing number of staff who are having to isolate, with 13% of companies saying some production has already stopped. The survey of 436 companies also showed companies rightfully continuing to prioritise the safety of their staff with more than two thirds of companies (67%) saying they had not removed any restrictions and had no plans to do so. Almost a fifth of companies (19%) have removed some restrictions, while just 2% have removed all.

The recent sensitivity changes to the NHS app are therefore a very welcome development prior to the imminent August 16th changes regarding the ending of selfisolation for those fully vaccinated, however mounting staff shortages, rising cost pressures, and shortages of raw materials due to supply chain disruptions are posing a real challenge. For these reasons I agree with Alpesh Paleja, CBI lead economist, who emphasises that it is vital that government now takes all measures to protect this revival in activity. Test and release could support the continued opening of the manufacturing sector and will help ward off further disruption at a time of numerous challenges and help kick-start investment plans and increase head counts.

Aaron Blutstein, editor