Following the release of the latest UK Manufacturing PMI today, Alastair Wilson, partner at MHA, detects renewed optimism in the sector fuelled by easing supply chain issues and rising consumer confidence, but notes the potential for serious disruption in the supply of energy and materials if developments in the Ukraine worsen:

“The relentless supply chain issues that dogged the manufacturing sector in 2021 are finally showing signs of abating, filling manufacturers with a renewed sense of optimism. Many have reported shortening lead times, helping businesses complete orders and plan with greater certainty in the short-term.

“This has coincided with rising consumer confidence as concerns over the Covid-19 Omicron variant have lessened, resulting in increased retail footfall that will drive demand. Compared with other major European economies the UK is well placed to accelerate out of the recent economic slowdown.

“Despite the uptick in positivity, long-term demand may diminish as consumers face the growing pressures caused by rising energy bills, inflation and increases in National Insurance contributions. The introduction of full customs controls on the UK border at the beginning of this month is also causing fresh logistical delays as businesses adapt to the new rules. The recruitment market also remains highly challenging, with many businesses reporting that shortages of labour are causing unsustainable increases in wages.

“Finally, the sector is growing increasingly concerned at the ominous tensions between Ukraine and Russia. This has already led to rising fuel prices which are having a direct impact on the profitability of businesses, resulting in further costs being passed to the end consumer. As the situation develops, manufacturers will be hoping for a swift de-escalation in rhetoric and hostility as they look to bounce back from a difficult 2021.”