British manufacturers’ inventory position deteriorated in December, which means the nation's supply issues could well continue into the new year.
The CBI Industrial Trends Survey of 258 manufacturing firms revealed stock adequacy of finished goods worsened to a new record-low position for the second month in a row (-24% in December, from -16% in November).
Respondents also said they expect price pressures to remain acute in the next three months.
“At a time of continuing global supply chain difficulties, labour shortages and material shortages, the government should seek longer-term solutions that promote growth and investment in UK manufacturing,” said Tom Crotty, chair of the CBI manufacturing council.
“On COVID-19, the government must offer clear guidance in good time for manufacturers to continue operating safely as the country grapples with the Omicron emergency.”
The survey also showed that UK manufacturing output growth in the quarter to December accelerated to its fastest pace since July – up 29% from 17% in November
Output increased in 15 out of 17 sub-sectors, with growth being mostly driven by the food, drink & tobacco and motor vehicles & transport equipment sub-sectors.
Total order books in December were judged to be ‘above normal’ to a similar extent to last month’s record high, while export orders were rated as broadly ‘normal’.
“UK manufacturing demand remains strong, and output accelerated to meet this demand in December. However, behind the scenes, firms are battling pressures on a number of fronts,” said Anna Leach, CBI deputy chief economist.
She said continued expectations for sharp price growth are a challenge for the sector, along with the spread of the Omicron variant dealing a blow to business confidence.
But she said “firms will welcome the government’s decision to move from isolation to testing as a method of controlling the virus without unduly impacting their ability to operate.”
Looking forward, manufacturers anticipate strong output price growth in the next three months (up by 62%), although expectations weakened slightly on last month, when they expected growth of 67%.
But they expect output growth to ease somewhat in the next three months, increasing by 23%.
Earlier this a year a survey by IHS Markit revealed the rate of growth in the UK manufacturing sector slowed in November compared with previous months and input costs mounted, despite rates of expansion in output and new orders gaining some traction.
The report said manufacturers continued to face a challenging operating environment, as the demands on supply chains disrupted production schedules and drove up input prices to the greatest extent in the survey's 30-year history.