The UK PMI has risen into positive territory for the first time since March 2008 after manufacturers recorded rises in orders and output in July.
The Purchasing Managers Index (PMI), from the Chartered Institute of Purchasing and Supply (CIPS) and Markit, reads 50.8 today, up from 47.4 in June. It is the first time the indicator has registered above the no-change mark of 50 in 16 months.
The PMI is calculated by assessing new orders, production, employment, supplier performance and stocks of purchases.
Production levels rose for a second straight month. Exports orders were still weak but domestic orders increased to more than compensate. A potential reason for this was low factory gate prices which manufacturing have adopted to attempt to drive demand. This will be partially offset by input costs which are lower too, with companies reporting lower costs for commodities, food products, paper and steel.
Employment is still declining, but the fall in July was the least severe in over a year. Inventory levels for both purchases and finished goods are still high which will continue to hold back output while destocking initiatives are carried out.
“The manufacturing sector has clearly pulled out of the nosedive it was in earlier this year and is no longer plummeting,” said David Noble, chief executive officer at CIPS. “Firms continued to slash inventories so severely that the downturn has been much deeper than might have been expected. However, output and new orders are both now rising as firms need to order new stock to meet sales.”
But Noble issued a few words of warning alongside the good news. “Whilst this is positive news,” he said, “the manufacturing sector is still far from healthy and smaller firms continue to bear the brunt. We may have to accept that the face of British manufacturing has changed forever and the sector will stabilise at a much-reduced size than before the recession. If this is the case then employment levels may never return to what they once were.”
Noble also reiterated the point that measures like the £150m government distributed last week for advanced manufacturing will only help a small part of the industry and more action is needed to help the wider cause.
Lee Hopley, head of economic policy at EEF, the manufacturers’ organisation, said that while a lot of uncertainty remains, “with most manufacturing indicators now moving in the right direction, the second half of this year should be notably better than the first half.”
The PMI figure also spurred sterling into its strongest position against the dollar in ten months. One pound was worth $1.685 dollars this morning after the PMI was revealed – a rise of 0.7 per cent.