The UK manufacturing industry enjoyed a rousing end to 2010 with strong growth in production and new orders, according to the latest Purchasing Managers' Index from the Chartered Institute of Purchasing and Supply.
The overall PMI figure for December, taking into account new orders, output, employment, supplier delivery times and inventories, was at 58.3. This was up from 57.5 in November and is now at its highest level in 16 years. Anything above the neutral level of 50 signifies growth.
New orders and output grew at their fastest rate since May last year, with strong demand registered from both home and abroad. Higher production to combat backlogs of work led to a rise in employment for the ninth successive month but work in hand grew none-the-less – an encouraging factor for job prospects at the beginning of the New Year.
To handle increased production, higher stocks were necessary but increased demand caused input prices to rise at a survey record high and entailed availability shortages. Adverse weather conditions also contributed to increased vendor lead times and the prospect of more snow to come may have lead companies to overstock inventories, which could further affect availability now.
Some, but not all, of manufacturers’ increased costs were passed on to customers.
Rob Dobson, senior economist at Markit, which conducts the research on behalf of CIPS, labelled the manufacturing sector’s performance at the end of last year as “truly spectacular” but said the input prices do give cause for concern.
“Manufacturers in sectors such as clothing, food products and chemicals were hit hard by demand exceeding supply for certain key inputs, as well as rising energy costs,” he said. “The hawks on the Bank of England’s Monetary Policy Committee will be further unnerved by these rising price pressures.”
Graeme Allinson, head of manufacturing at Barclays Corporate, commented: “In terms of demand for the UK’s manufactured goods, a strengthening in household consumption, net trade and investment should offset the fall in public sector demand. Business investment certainly has the potential to grow in 2011, as non-financial firms in the UK have been running substantial cash surpluses in recent quarters.
“Globally our economics team expects growth to slow moderately, to about 4.25% in 2011 from 4.9% in 2010, with the slowdown mainly the result of softening emerging world growth, particularly Asia and Latin America. Indeed, emerging market countries are set to move towards more sustainable growth after the strong rebound following the crisis, while still offering huge opportunities for UK manufacturers.”
Barclays economists expect the wider economy to grow by 2% in 2011 and 2.1% in 2012.