Today's latest CIPS/Markit Purchasing Managers' Index suggests an encouraging export-led start to 2010 for UK manufacturers, building on a recovery born late last year.
The headline PMI – a single figure indicator of operating conditions in the manufacturing sector – is at a 15-year high as firms have upped production and recorded growth in new orders. At 56.7 the January reading is the best since October 1994 and is up from December’s upwardly revised 54.6. A PMI reading over 50 constitutes growth.
New orders in total grew at their fastest rate in six years but export orders taken alone are at their strongest level in 14 years. Production increased for the eighth straight month while employment rose – albeit very slightly – for the first time since April 2008.
“This is very positive news and a great way to start the year,” said David Noble, chief executive of the Chartered Institute for Purchasing & Supply. “Although the manufacturing sector represents a smaller proportion of total UK GDP than 10 or 20 years ago, it is still a very important part of the economy. It is therefore encouraging to see such strong growth and it suggests we are coming out of recession much quicker than previously feared.
He said the slight rise on the manufacturing payroll was especially pleasing because, as employment is “a lagging indicator”, it signals optimism for the year ahead.
However, “inevitably, though, purchasing managers voiced some notes of caution,” he warned. “The spike in purchasing activity was attributed to inflationary concerns and delivery delays – rather than increased client demand. Also, the highly competitive nature of this still fragile market meant firms shied away from raising their selling prices to a sufficient extent to fully cover cost increases.”
Graeme Allinson, head of manufacturing, transport and logistics at Barclays, described the PMI as “a shot in the arm for battle-hardened UK manufacturers”.
But he too is reserving an air of caution. “For this trend to be sustained a lot will depend on several fundamentals in 2010 that are at present unclear,” he said, “including global growth, general business confidence and the impact of an election on regulation, tax and spending. Until a clearer picture emerges we can expect to see general economic uncertainty hampering growth.”
The monthly CIPS/Markit PMI survey includes over 600 industrial companies, covering a broad range of sub sectors and company sizes.