Factory output leaps again

Posted on 4 Jan 2011 by The Manufacturer

PMI shows that manufacturing confidence had a happy end to 2010, as December output climbed to its highest level since 1994.

The Chartered Institute for Purchasing and Supplies and Markit’s UK manufacturing PMI rose to a seasonally adjusted 58.3 in December, a 16-year high. In November 2010 it rose to 57.5, revised down from an initial score of 58.0.

The high PMI was driven by exports with new orders rising at the highest rate since records began. The previous highest rise was in April 2010.

“Notwithstanding fears of a consumer-led downturn and capex fiscal restraints from governments, the reality is that industrial demand has been high for a year now,” said Robin Johnson (pictured), partner and head of the industrial engineering group at international law firm Eversheds.

“Not only large multinationals but also SMEs have recognised the need to focus on global markets. British reliability, quality and guaranteed lead times has stimulated export opportunities. High quality technology and leading edge manufacturing has attracted orders from Europe and further afield.”

Tracking October to December’s PMI rises, despite the revision in November, output surged ahead through to the end of 2010.

“Increasing demand in both home and export markets, along with the continued strength of eurozone PMIs, should put the UK recovery on solid ground as we enter 2011,” said Lee Hopley, EEF’s chief economist. “A continued contribution to growth from manufacturing will become more important this year as spending by government and household falls back. However, with a range of surveys now pointing to building price pressures concerns around stubbornly high inflation are unlikely to diminish soon.”

Manufacturers are focused on sustaining growth through 2011, or getting on the curve. A sustained recovery rests on several factors, and while the Government has shown a deeper understanding of the needs of manufacturing with the publication of its Growth Review Framework for Advanced Manufacturing in December, many moving parts need to align for a stronger recovery.

“The key [for sustained growth] is not to be complacent and for the Government to continue to support British manufacturing through R&D credits and cluster funding,” Eversheds’ Johnson adds. “A missed opportunity happened before Christmas when government shelved its Manufacturing White Paper. The Government must remain committed to manufacturing and encourage inward investment through training and relocation grants as well as consistency on regulation from the new economic powerhouses of Asia and Latin America who will gradually replace the traditional North Atlantic multinationals.”

Business minster Mark Prisk was encouraged by the figures. “As a sign of the importance we attach to industry we are carrying out a growth review into how we can remove the barriers facing Advanced Manufacturing and we will report back with policy proposals by Budget 2011,” he said.
“This month we will host an Advanced Manufacturing summit attended by manufacturers, Nick Clegg, Vince Cable and other Government departments to look how we can work together to grow UK industry.”

Investment will be very important in the next stage of the recovery, and questions remain over access to finance for engineering sector firms. Graeme Allinson, Barclays Corporate’s head of manufacturing, is confident that conditions will improve. “Business investment certainly has the potential to grow in 2011, as non-financial firms in the UK have been running substantial cash surpluses in recent quarters.

“Globally our economics team expects growth to slow moderately, to about 4.25% in 2011 from 4.9% in 2010, with the slowdown mainly the result of softening emerging world growth, particularly Asia and Latin America. Indeed, emerging market countries are set to move towards more sustainable growth after the strong rebound following the crisis, while still offering huge opportunities for UK manufacturers.”

He added that demand for the UK’s manufactured goods, and a strengthening in household consumption, net trade and investment should offset the fall in public sector demand for manufactured goods in 2011.