Concerns mount over skills and materials shortages in manufacturing

SME manufacturing output grew at the fastest pace since October 1988 in the three months to July, according to the CBI’s quarterly SME Trends Survey. Despite the optimism, supply-side constraints on output are growing. The share of firms citing concerns about the availability of skilled labour as a factor likely to limit output was at a joint-record high.

SME manufacturers also continue to report severe cost and price pressures. Average costs rose at their quickest pace on record in the three months to July. Additionally, firms reported record domestic price growth, and the fastest increase in export prices in four years. Both costs and export price growth are expected to slow in the next quarter, while domestic price growth is anticipated to pick up further.

The survey of 234 SME manufacturing firms also saw the volume of total new orders increase at the quickest rate on record, reflecting a record rise in domestic orders and the quickest export orders growth since January 2019. Furthermore, employment numbers also grew at the strongest pace on record in the three months to July.

Alpesh Paleja, CBI lead economist, said: “The economic recovery has given a significant boost to SME manufacturers, with firms reporting record growth in activity. Buoyant demand has led firms to kick-start their investment plans and increase headcounts. The outlook further ahead is also positive, as businesses expect activity to continue to grow strongly.

“However, mounting staff shortages, rising cost pressures, and shortages of raw materials due to supply chain disruptions are posing a real challenge to the outlook.

“It is vital that government now takes all measures to protect this revival in activity. Test and release could support the continued opening of this sector, and will help ward off further disruption, and vitally, keep our economy open.”

Over the next three months, output volumes are expected to grow at a similarly strong rate. Total new orders are anticipated to increase at a slightly slower pace. Headcounts are also expected to increase at a similar pace.

Image courtesy Siemens

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