Will Government step in to help manufacturers navigate headwinds?

05 October 2021

Current headwinds, including supply chain disruption, material shortages, resource pressure and the most recent fuel crisis, have yet again hit the latest CIPS manufacturing PMI. Albeit unsurprising, it is still disappointing to see another monthly fall from 60.3, to a seven-month low of 57.1 in September, as manufacturers would have been hoping for a slight rebound after the holiday period.

At a time when manufacturers are facing severe operational and financial pressure, the added complication of limited fuel will not only hamper the delivery of goods, but manufacturing staff predominately commute to work by car; with no fuel available on the forecourt and no option to work from home, production could stall even further. 

Soaring energy prices are also acutely impacting the manufacturing sector, where some have had to take action to temporarily shut down factories as it’s unviable to turn the lights on as prices surge. Input cost inflation continues, while output prices remain relatively static which is creating an untenable situation for the sector as businesses continue to absorb additional costs. Add in the end of the furlough scheme, and manufacturers might have to make some tough decisions based on what is hoped to be a temporary situation.

Pugh’s view – troubling employment data a major worry for the sector

Our UK Economist Tom Pugh believes that the fall in the latest CIPS manufacturing PMI suggests that manufacturing output probably didn’t rise by much in August after remaining flat in July. As a result, the sector will probably remain stuck at about 2.5% below its pre-crisis level. In another worrying sign, the employment balance fell from 57.8 in August to 51.5 in September, suggesting that manufacturing firms aren’t recruiting more staff, which doesn’t bode well for future production.

What next?

The big question is whether Government will step in and offer sector specific support within the forthcoming Autumn Statement to help manufacturers trade out of unprecedented times. We are hearing rumblings of a £500m extension to Rishi Sunak’s “plan for jobs” as the government tries to avoid a surge in unemployment following the end of the furlough scheme. Headwinds are coming, let’s hope the sector gets the support it deserves.

For further information, please contact Mike Thornton.