Britain’s manufacturers are struggling with their worst supply shortages since the mid-1970s, as fears grow in the sector over the economic fallout from rising costs and a lack of key materials.
Almost two-thirds of the businesses surveyed in the snapshot from the Confederation of British Industry (CBI) warned that shortages of components would hit factory output in the next three months.
That was the biggest share since January 1975, a year when inflation hit a postwar high amid severe economic turbulence in Britain and abroad, with NHS doctors going on strike and Glasgow bin collectors staging industrial action.
The latest survey of 263 manufacturers, held against a backdrop of severe supply chain disruption caused by Covid and Brexit, also reported rising concern over staff shortages holding back industrial output over the coming months.
As many as two in five firms worried about a lack of skilled labour to keep factory production lines running, the highest since July 1974, when Britain was still emerging from the three-day week just months earlier.
Coming a week before Rishi Sunak delivers his budget and spending review, the CBI warned that companies were facing mounting costs and that growth in the manufacturing sector was at risk.
Faced with slowing economic growth and concerns that severe disruption could ruin Christmas, ministers drafted in the former Tesco chief executive Sir David Lewis this month to lead a new supply chain advisory group.
However, the CBI said bold action was required in the budget to unblock short-term challenges across the economy.
“Manufacturers are using key levers, such as hiring new workers and planning further investment in plant and machinery and training, to expand production,” said Anna Leach, the deputy chief economist at the lobby group. “But with both orders and costs growth expected to climb over the next quarter, we’re not out of the woods yet.”
Firms reported that average costs growth in the three months to October remained broadly in line with the level in July, a period when prices facing companies rose at the fastest rate since 1980.
Companies said rapid cost growth was expected to continue to feed into price pressures, with average domestic and export prices rising at the fastest rate since 1980 and 2011 respectively. It comes after official figures showed factory gate prices rose to 6.7% in September from 6% a month earlier, the highest level for a decade.
Overall, output in the manufacturing sector grew in the three months to October at a similarly firm pace to September. Output rose in 11 out of 17 sub-sectors, with growth driven by the chemicals, aerospace, and food, drink and tobacco subsectors.
Despite concerns over supply shortages and rising prices, firms expect output growth to continue to rise over the coming months.
With soaring global energy costs, the Bank of England has warned UK inflation could peak above 4% this winter and remain at elevated levels until the summer.
Threadneedle Street is widely expected to raise interest rates to tackle inflation above its 2% target rate, possibly as early as November. However, the government and the Bank have said rapid growth in prices is likely to be temporary and should fade next year as pandemic disruption recedes.
Tom Crotty, the group director at the chemicals firm INEOS and chair of the CBI’s manufacturing council, said it was reassuring that growth in industry output and new orders was continuing into autumn despite the economic challenges.
“However, the last quarter has been undoubtedly overshadowed by firms facing shortages of materials or components, struggling to fill roles and grappling with increased energy cost pressures. It is essential that the government continues to work constructively with businesses to identify ways to alleviate this difficult situation,” he added.