Manufacturing growth continues despite decline in exports

Posted on 1 May 2012 by Tim Brown

The most recent UK manufacturing PMI figures, released today, signalled expansion in the sector for the fifth month running although export orders fell sharply in April.

Growth in the manufacturing sector slowed at the start of the second quarter, after making a solid start to the year. The Markit/CIPS UK Manufacturing Purchasing Managers’ Index (PMI) dipped to 50.5 in April, below March’s revised reading of 51.9, but still above the neutral 50.0 mark that separates expansion from contraction.

The PMI has signalled industrial growth in each of the past five months. Manufacturing output expanded for the fifth month running in April. However, the rate of increase eased to its weakest in the year-to-date, partly due to a sharp reduction in new export orders.

Total new order books fell slightly for the first time in five months in April. This mainly reflected a sharp drop in new export business – the steepest since May 2009 – resulting from weaker demand from mainland Europe, the US and East Asia.

Commenting on today’s PMI data, Ms Lee Hopley, chief economist at EEF said: “The good news is that manufacturing clocked up a fifth straight rise… The bad news is that ever-present Eurozone woes are still bearing down on the short term outlook, with some suggestion of renewed downward pressure on export orders over the past month.”

Inflationary pressures eased slightly but companies continued to report paying higher prices for chemicals, eggs, feedstock, fuel, metals, oil and polymers. A number of companies also indicated that suppliers were raising their charges to reflect increased transport costs. As a result output price inflation continued to rise as manufacturers passed on increases in input costs to their clients.

Employment in manufacturing edged higher in April, with a marginal increase in payroll numbers reported for the fourth successive month. Where an increase in staffing was indicated, this was attributed to higher output and the introduction of new product lines.

Rob Dobson, senior economist at Markit and author of the Manufacturing PMI said that while some indications were still positive, concerns exist for the UK economic recovery. “Although the expansion in output is a positive , as is a modest increase in employment, manufacturers are still sustaining growth through past demand, a circumstance that can not continue indefinitely. What manufacturers really need to see is a marked improvement in new order inflows, so April’s sudden sharp drop in new export orders was a real disappointment.”

Some commentators were more hawkish about the flat growth, emphasising the negative kickback on the UK of Europe’s economic travails.

“The uncertainty and continued volatility of the eurozone continues to impact on our manufacturers, hitting new orders and declining backlogs, which fell for the 15th month in a row,” said Philip Hines, head of Industrial Products, Transaction Services at PwC. “While the slight expansion in April is welcome, it is limited and the outlook for UK manufacturing remains fragile.”