Manufacturing edges back in the right direction

Posted on 1 Apr 2016 by Victoria Fitzgerald

Markit/CIPS Purchasing Managers’ Index posted 51.0 in March, compared with February’s 34-month low, which recorded 50.8.

Although the sector has strengthened nominally, March’s result left the quarterly average at a relatively subdued level of 51.6, equalling the lowest recorded since the PMI first moved back above the neutral 50,0 mark in early 2013.

March saw production rise at a pace unchanged from February’s seven-month low. Where an increase in output was registered, this mainly reflected improved inflows of new business. The domestic market was the prime source of new contract wins.

The intermediate goods sector recorded the steepest expansions of both production and new business during the latest survey month. The performance of the consumer goods sector also remained mildly positive.

Output of consumer products rose moderately following a solid rebound in new order volumes from February’s contraction. The trend in investment goods output growth continued to slow sharply, as new work received fell for the second straight month.

Levels of new export business decreased for the third straight month in March. The latest decline was centred on the investment goods sector, as consumer and intermediate goods producers both reported modest gains.

Softer global economic growth was reported to have tempered the trend in new work received from key trading partners such as the US and mainland Europe. There was also some mention of the weak oil and gas market impacting on sales to some regions – especially the Middle East.

400 jobs to go at Tata Steel's Port Talbot site
Thousands of jobs are now under threat across the UK, following Tata Steel’s announcement to sell its UK operations.

Manufacturing employment declined for the third consecutive month in March. Reflecting the trend in new business, the sharpest job cuts were initiated in the investment goods sector. In contrast, consumer and intermediate goods producers both raised their staffing levels.

Company size data suggested that SMEs increased employment, but this was offset by cuts at larger manufacturers. Price pressures remained on the downside during March. Average factory gate charges where reduced slightly, as companies responded to increased competition.

Part of the decrease in selling prices was driven by the pass through of lower input costs, which fell for the nineteenth successive month.


Lee Hopley, Chief Economist at EEF, the manufacturers’ organisation, said: “The data confirms subdued activity across the sector at the start of the year, coming on the heels of a flat 2015. The main factors keeping a lid on growth don’t come as a  particular surprise, with the effects of the low oil price and weak global demand part of the manufacturing narrative for over a year.

“Amidst the somewhat disappointing start to the year and the significant challenges facing the steel sector, which have once again come to the fore in recent days, there are still pockets of growth, notably in the intermediate production sectors. Industries such as chemicals, rubber and plastics and electronics are also buoyed by low input costs and domestic support from an increase in construction activity.

“However, there isn’t anything in this, or other surveys of late to suggest that manufacturing will make much of a dent in the imbalanced growth across the UK economy in the coming quarters.”

Rain Newton-Smith, CBI director of Economics, said: “A larger current account deficit is a risk for the UK. Furthermore, it could increase pressure on the pound, which has fallen in recent months.

“Export growth remains weak, and with global economic momentum softening and strong domestic demand driving imports higher, we don’t expect much to see much of a boost to the economy from net trade.

“The dip in business investment at the end of 2015 is disappointing, but we should bear in mind that official data can be volatile.

“The CBI’s economic surveys suggest that investment intentions for the year ahead are holding up and profitability remains solid, so we expect business investment to make a decent contribution to growth. There could be exceptions though, with capital spending in the North Sea hit by low oil prices, and manufacturers having a tougher time.”

Head of manufacturing, SME banking, at Lloyds Bank Commercial Banking, Dave Atkinson said: “A global economic slowdown is dragging on the confidence of the British manufacturing industry, and with the strength of the pound falling, fears remain of further falls in output.

“The food and drink sector is performing well, but uncertainty around Europe and the global slowdown is causing management teams to look at the impact it could have on their operations.”