Fears grow as UK factories hit by worst supply chain shortages since mid-70s

CBI survey of businesses reveals concern a week before chancellor delivers budget and spending review

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.

Sign up to the daily Business Today email or follow Guardian Business on Twitter at @BusinessDesk

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.

Contributor

Richard Partington Economics correspondent

The GuardianTramp

Related Content

Article image
UK factories struggle to meet record demand as supply issues continue
CBI snapshot finds firms running down stocks to meet order books and raising concerns about inflation

Larry Elliott Economics editor

24, Nov, 2021 @4:44 PM

Article image
From coffee to microchips – how the supply chain crisis is disrupting UK plc
All you need to know about who is affected and why it’s the worst supply chain crisis since the 1970s

Richard Partington Economics correspondent

10, Sep, 2021 @2:06 PM

Article image
UK economic recovery slows sharply as GDP grows by 1.3%
Surging infection rates, the ‘pingdemic’, rising prices and supply constraints put the brakes on growth

Larry Elliott Economics editor

11, Nov, 2021 @7:39 AM

Article image
UK plunges towards supply chain crisis due to staff and transport disruption
Shortage of workers and disruption cauused by Covid and Brexit push retail stock to 38-year low

Richard Partington and Joanna Partridge

24, Aug, 2021 @6:13 PM

Article image
UK firms reach deal over CO2 supply chain shortages
Department for business says it has brokered a deal which will avert shortages until January

Rob Davies

11, Oct, 2021 @1:15 PM

Article image
UK inflation falls despite rising petrol prices and supply chain crisis
Consumer price index eased to 3.1% in September from 3.2% in August, says ONS

Richard Partington Economics correspondent

20, Oct, 2021 @7:10 AM

Article image
Brexit economy remains resilient despite political chaos
Latest analysis shows a widening disconnect between good economic news and deepening fear of a no-deal Brexit

Richard Partington Economics correspondent

27, Sep, 2018 @11:50 AM

Article image
CBI backs May's Brexit deal and says no deal would lead to shortages
Leading manufacturers make clear they are stepping up planning for no-deal Brexit

Larry Elliott Economics editor

16, Nov, 2018 @5:52 PM

Article image
British industry’s output now at record growth levels
Reopened economy brings warning of prices rising at fastest pace in almost 40 years

Phillip Inman

22, Jun, 2021 @5:00 PM

Article image
Bank of England keeps UK interest rates on hold at 0.1%
City wrongfooted after committee decides to hold rate despite forecast of 5% inflation by spring

Larry Elliott Economics editor

04, Nov, 2021 @12:05 PM