March also saw the fastest output growth since late-2020, as inflows of new business from both domestic and overseas markets strengthened.
The 121-month high PMI level was supported by improved growth of output, new orders and employment along with increased supplier lead times. A slower decrease in stocks of purchases also had a positive impact on the latest reading compared to one month ago.
The success of the UK's vaccine rollout and the planned loosening of lockdown measures is credited for the high level of output, which increased for the tenth successive month and at the quickest pace since last November. Solid and accelerated growth was signalled in both the intermediate and investment goods industries. Consumer goods production returned to expansion following back-to-back contractions.
Companies reported increased demand both domestically and overseas, rising business confidence and customers ordering early to guard against potential price rises and further supply-chain disruption. New export business rose at the quickest pace in the year-so-far, amid reports of improved demand from Europe, Asia and the US.
As a consequence, job creation and optimism also hit long-term highs. Business sentiment was at its most elevated for seven years, hitting unsurpassed levels at both consumer and investment goods producers. Almost two-thirds of manufacturers expect output to rise over the coming year (only 6% expect a contraction). Jobs growth was also at a seven-year high, supported by the sharpest rise in backlogs of work for 11 years.
However, the sector remained dogged by supply chain challenges, with delays from suppliers disrupting production and distribution schedules.Vendor lead times lengthened to the second-greatest extent in survey history due to COVID-19 restrictions, low stocks at suppliers, port disruption, shipping delays, post-Brexit issues and raw material shortages. With demand outstripping supply, input price inflation accelerated to a 50-month high. This also led to upward pressure on output charges, which rose at the quickest pace since January 2017.
Industry reaction
Dave Atkinson, SME & Mid Corporates head of manufacturing at Lloyds Bank: “While output and new order growth is encouraging, production remains squeezed by supply chain constraints as reflected by quickly-rising backlogs.
“International supply lines have been playing catch up for months, following pandemic and border related disruption that has doubled the cost of shipping on some routes year-on-year. Yet the Suez blockage added further misery to those with suppliers and markets in Asia. While it’s real impact may come too late to show in this month’s data, it’s already revealed how precarious the ‘just-in-time’ supply chain model can be.
“Confidence in a return to normality is clearly buoying orders and optimism, while indicators in March show the economy is outperforming many forecasts – representing fertile ground for growth in the medium term.”
Ginni Cooper, Partner at MHA: “While it seems the initial commotion caused by Brexit has settled down, shipping delays are still an issue, not least because of recent disruptions in trade routes due to the Suez Canal incident last week. In addition, increased paperwork and administration has deterred some manufacturers from trading across borders and has led them to re-evaluate their supply chain arrangements, particularly where exports had been a minimal part of their business. On the flip side, this presents opportunities to other manufacturers that have perhaps been more prepared for the changes.”
Simon Jonsson, head of industrial products at KPMG UK: “Manufacturers are feeling increasingly confident about the new trading environment with Europe and that they’ve weathered the COVID-19 storm, as the country takes its first steps on the road to normality and consumer confidence rebounds.
“An upswing in output and demand is likely to precede an uptick in M&A activity as businesses look to focus on their portfolio of product and service offerings. Of particular interest at the moment is M&A activity around the packaging, building products and specialist engineering spaces.”
