Press release

22 Oct 2021 London, GB

Activity picks up but supply-side constraints remain – EY ITEM Club comments

October’s flash PMIs bucked the downward trend of recent months, with the composite measure rising to a three-month high. But supply frictions continued to hold back activity and contributed to cost pressures staying historically high

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Related topics Growth COVID-19
  • October’s flash PMIs bucked the downward trend of recent months, with the composite measure rising to a three-month high. But supply frictions continued to hold back activity and contributed to cost pressures staying historically high.
  • Those frictions should ease as spending patterns move back to pre-pandemic norms and market forces exert an effect. But adjustment pains as the economy emerges from the crisis will continue to weigh on the economy in the near term.

Martin Beck, senior economic advisor to the EY ITEM Club, says: 

“After the PMIs had consistently fallen since late spring, October’s flash indices bucked what has been a gloomy air surrounding the economy and signalled activity picking up steam again. The services PMI rose to 58.0 from 55.4 in September and the flash manufacturing index increased to 57.7 from 57.1. These moves contributed to the composite index rising to a three-month high of 56.8 from September’s 54.9.

“However, the details of the survey suggested that growth is increasingly services-heavy. The manufacturing output index was only just above the 50 ‘no-change’ mark, with the overall PMI benefitting from lengthier supplier lead times. And October’s survey gave a strong signal that growth continues to be held back by supply failing to keep up with demand. Companies cited supply-chain disruption and shortages of raw material and staff. These pressures contributed to input and output prices both rising at record paces.

“Supply constraints should ease as consumer demand rotates back from goods towards services and market forces aid in bringing demand and supply into balance. But there is little sign of any abatement yet – for example, October’s CBI industrial survey showed concerns about supply shortages escalating to levels not seen since the 1970s. So, the economy looks to be facing a more difficult and sluggish period ahead.”