February saw strong overseas sales & further job creation

Posted on 1 Mar 2018 by Jonny Williamson

The upturn in the UK manufacturing sector dipped during February, but more encouragingly the latest Markit/CIPS Purchasing Managers’ Index (PMI) has also shown increased overseas sales and further job creation.

Almost 56% of companies forecast that output would be higher in one year’s time – image courtesy of Depsitphotos.

Manufacturing production increased at the slowest pace for 11 months in February; with decelerations seen across the consumer, intermediate and investment goods sectors, the new PMI has shown.

On the other hand, brighter news was provided by the trend in new orders, which rose at a faster pace than in January.

Companies indicated that domestic demand strengthened, while new export business rose at a solid (albeit slower) pace.

New export business rose for the 22successive month in February. Where an increase was reported, this was linked to improved sales to clients in the US, China, Europe, Brazil and East Asia.

However, the overall pace of expansion eased to a four-month low.

UK manufacturers’ outlook also remained positive in February. Almost 56% of companies forecast that output would be higher in one year’s time, compared to only 6% expecting a decline.

Business confidence was linked to planned expansions, rising new order inflows, new product launches, investment activity and marketing efforts. Moreover, the degree of positive sentiment remained close to January’s 28-month high.

Expected future growth encourages job creation  

The combination of ongoing expansion and expected future output growth encouraged further job creation at UK manufacturers in February.

Employment rose for the 19th month in a row, with the rate of expansion the second-fastest since mid-2014. The increase in capacity aided efforts to reduce backlogs of work, which fell for the second straight month.

Rising demand also underpinned a further increase in manufacturers’ purchasing activity during February. However, the rate of increase in input buying volumes slowed to an eight-month low.

Companies indicated that rising demand for inputs was causing shortages to develop, leading to further lengthening of average vendor lead times and higher prices charged by suppliers.

Average input costs rose sharply during February, as manufacturers experienced price increases for a broad range of commodities and raw materials.

Part of the increase in purchasing costs was passed on to clients in the form of higher output charges. However, rates of inflation in both price measures were slower than those signalled in the prior survey month.

Mike Rigby, head of manufacturing at Barclays, commented: “Production in the sector may be lagging compared to the closing months of last year, but UK manufacturing output remains in positive territory with demand still strong.

“That said, although the sector remains positive, the continuing uncertainty over Brexit negotiations can’t be helping the investment intentions of manufacturers who are looking for some degree of clarity over the future relationship with the EU sooner rather than later.  Manufacturers will also need to remain flexible in their planning as they negotiate the uncertain market conditions in 2018.

“With current Barclays data highlighting the premia that international consumers are prepared to pay for British goods, and given the continuing improvement in key overseas markets, manufacturing businesses should be increasingly focusing on differentiating their products on quality and service.”

Dave Atkinson, UK head of manufacturing at Lloyds Bank Commercial Banking, said: “Despite a slight decrease the February PMI figure is still strong and it reflects a sector in a positive mood with strong activity and order books.

“Recent ONS figures show sector productivity is increasing, although there is still some way to go before the UK catches up to its G7 counterparts. But, manufacturers are taking steps to make this happen by investing in automation and exploring the opportunities presented by Industry 4.0. Many are using specialist asset finance facilities to invest in equipment, protecting their working capital which can be used to support growth opportunities.

“Clearly, challenges and uncertainties lay ahead. All firms are keen for clarity on the future trading relationship with the EU, but manufacturers, which account for nearly half of UK exports, are disproportionately exposed to uncertainty associated with international trade agreements. The PMI will therefore be closely watched in the coming months for any clues as to how exporting firms are managing this uncertainty.”

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