Rising cost of raw materials bites into manufacturing growth

UK manufacturing output grew at a slower than expected rate last month as the rising cost of raw materials began to impact firms.

The IHS Markit/CIPS manufacturing purchasing managers’ index (PMI) dropped to 55.3 in January – its lowest level since June 2017. However, as the figure remains above 50 then expansion is still taking place.

Markit has said that if the level is sustained, then it would expect growth to be 0.6% for the first quarter – which would be half that achieved in the final quarter of 2017.

Commenting, Carl Radd, Manufacturing Relationship Director at Barclays in the Midlands, said: “Today’s figures shouldn’t be too discouraging despite a slowing in output as manufacturing continues to register growth month after month.

“Continuing improvement in key export markets has helped boost order books though the flip side of the coin is that with elevated input prices and supply chain costs, the growing prospect of inflationary pressure looms large.

“With an increasing reliance on exports for growth, what manufacturers need to see sooner rather than later is a Brexit transition deal to avoid the risk of a more cautious and uncertain approach to investment from the sector.”

Meanwhile, Atul Kariya, head of manufacturing at MHA MacIntyre Hudson, said it was important the need to develop skills was not overlooked.

“The CBI SME trends survey and UK manufacturing purchasing managers’ index have once again emphasised the dire skills shortage facing the sector. Manufacturers are already juggling increasing cost pressures in the face of economic and political uncertainty, and need to review their contingency plans for the year ahead to shelter their profits,” he said.

“The threat of the continued struggle to attract new talent to the sectors must not be underestimated. While the apprenticeship levy intended to address the issue, it has barely scratched the surface, with minimal impact on encouraging workers to enter the industry. A cultural change is needed within the sector, with more focus on increasing incentives among manufacturing businesses; for example through campaigns to drive more vocational training, increasing on the job training opportunities or implementing tax breaks.

“At this stage the skills shortage is merely simmering on the surface, but if action isn’t taken soon, we will see a full blown skills crisis within the next five years.”