Skills shortages temper manufacturing boom

A record growth in manufacturing activity among the UK's small and medium-sized enterprises is being accompanied by mounting concerns over skills shortage, according to a new survey.

The latest 'SME Trends Survey', compiled by the Confederation of British Industry (CBI) and covering the three months to the end of July, also reflected global concerns over supply chains and material shortages.Fears over skills shortages were reported by a third of the 234 SME manufacturing firms surveyed - a percentage equalling the previous total on record.On the upside, companies 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.Employment numbers also grew at the fastest pace on record over the three months and business optimism in the sector remained strong.Alpesh Paleja, lead economist at the CBI, 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.”The survey found that over the coming three months, output volumes were expected to grow at a strong rate similar to the last quarter, with a commensurate growth in workforce numbers.
Manufacturers’ investment intentions for plant and machinery are also standing at their highest since records began in 1988, while companies' investment plans in training and retraining over the coming 12 months are at their highest level in almost a quarter of a century."However," the CBI added, "it is clear that 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, while the proportions citing other labour or materials/components remained close to their respective record highs."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 somewhat next quarter, while domestic price growth is anticipated to pick up further."This week, the IHS Markit/CIPS Purchasing Managers' Index (PMI) for British manufacturing in July showed sustained growth despite soaring costs due to increased demand and persisting supply chain problems caused by the Covid-19 pandemic.The reading of 60.4 was slightly down on the June figure but well ahead of economists' expectations in an index where any reading above 50 indicates growth.

Read more news and views from David Sapsted.

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