UK Manufacturing PMI: pent-up demand drives ongoing boom but inflation threat looms large – MHA comments

Atul Kariya, Head of Manufacturing and Engineering and Partner at MHA, comments on today’s UK Manufacturing PMI as high demand and increased CapEx propels the UK manufacturing sector, but warns of dangers posed by ongoing supply chain issues and global inflationary pressure:

“High customer demand for products driven by further opening up of the economy continues to spur the UK’s manufacturing sector. As many manufacturers have and continue to operate through lockdown restrictions, it’s evident that the impact of pent-up demand is now working its way through the system.

“This demand, coupled with short term tax incentives announced in the March budget, has emboldened manufacturers to increase their capital expenditure (CapEx), accelerate recruitment, and make greater investments, all of which are further increasing demand for products and productivity within the sector.

“UK manufacturers have shown incredible resilience during extremely challenging circumstances this year, including the ongoing Covid-19 pandemic, post-Brexit issues and the recent Suez Canal crisis. As we enter the summer months, businesses are faced with new hurdles, such as inflationary pressures on raw materials, components and supply chain shortages which pose significant threats to the recent growth in production.

“Indeed, high demand for materials, components and aggregates has already led to inflationary pressures and higher production costs. Worse still, supply chain issues and product shortages are an ongoing issue that could stifle the sector’s recovery. But perhaps the biggest threat of all is the increase in global inflation which should be a major concern and has the potential to slow down the UK manufacturing sector (as well as the wider economy) this year.”