UK manufacturing at four-year high but costs rise at pandemic pace
The UK manufacturing sector broke to a four-year record in April but the constraints triggered by the Iran war threatened to upend growth prospects.
The latest Purchasing Managers Index (PMI) from S&P Global put the industry’s reading at 53.7 – its best since May 2022. This marked its sixth consecutive month above the neutral 50.0 mark, which indicates if a sector is growing.
In another major boost to manufacturers, staffing levels increased for the first time in 18 months.
Production was boosted by the scaling up of output volumes from new order intakes and efforts to clear backlogs of work. Meanwhile, output growth increased across the consumer, intermediate and investment goods categories.
Despite April’s boon, Rob Dobson, director at S&P Global Market Intelligence, warned it came with “several” catches.
Strait of Hormuz threatens to upend manufacturing
“Restrictions on transit through the Strait of Hormuz are causing substantial disruptions to input deliveries, with supplier lead times lengthening to the greatest extent in almost four years,” Dobson said.
The Strait of Hormuz, a narrow waterway that connects the Persian Gulf with the Gulf of Oman and Arabian see, has been the key driver of inflationary pressures caused by the war in Iran.
The strait is a vital shipping lane for not just oil, but also helium and fertiliser, meaning the ongoing conflict threatens to clog up supply chains.
“The resulting material shortages are exerting steep pressure on purchasing costs,” Dobson added.
Input prices – costs incurred by businesses to acquire resources – surged at one of the “fastest rates in the 34-year survey history”.
Dobson said the pace seen “rarely exceeded outside of the pandemic-related inflationary surge of 2021-2022”.
Alongside this, business optimism fell to its lowest level in a year during April, as the prolonged conflict continued to cloud outlook.
Chris Barlow, head of manufacturing at MHA, said: “In the near term the bigger concern is that supply chains are starting to creak again with longer delivery times, parts shortages and wider transport delays quickly hitting output, even if demand is so far holding up.”