Manufacturing remains “star pupil” in wider UK economy

Posted on 1 Feb 2018 by Jonny Williamson

UK manufacturing growth has eased in the start of 2018, yet remains well above the long-run average and outperformed both construction and services, according to the latest Purchasing Managers’ Index.

Car production line Manufacturing - image courtesy of Depositphotos.
Manufacturing output continued to increase at a solid place, although the growth rate eased to six-month low – image courtesy of Depositphotos.

The rate of expansion in UK manufacturing saw the Markit/CIPS Purchasing Managers’ Index (PMI) hit 55.3 in January – lower than Decembers’ 56.2 and November’s 51-month high of 58.2, but above the long-run average of 51.7.

Manufacturing output continued to increase at a solid place, although the growth rate eased to six-month low. Higher production reflected rising new order intakes, driven by robust demand from both domestic and international sales.

January saw the trend for new export orders strengthen, with foreign demand improving at one of the quickest rates since 2014 – mainly thanks to interest from North America, China, mainland Europe, the Middle East and Japan.

There has been a further increase in price pressures, rising at the fastest rate in 11 months. Increases were seen across a wide variety of raw materials, including chemicals, food products, metals, oil, paper and plastics.

Input buying activity among UK manufacturers reportedly rose for the eighteenth successive month, with the rate of increase remaining marked. Some companies reported bringing forward planned purchases to guard against future prices rises and delays in the delivery of goods from suppliers.

UK manufacturers maintained a positive outlook, with more than half (55%) forecasting production to be higher in one year’s time. Optimism reflected improved market conditions, global economic expansion, fuller order books, export opportunities, investment in new equipment and planned product launches.

Head of manufacturing at Barclays, Mike Rigby explained: “Today’s figures shouldn’t be too discouraging despite a slowing in output as manufacturing continues to register growth month after month.

“Continuing improvement in key export markets has helped boost order books though the flip side of the coin is that with elevated input prices and supply chain costs, the growing prospect of inflationary pressure looms large.

UK production output has reached its highest for a decade, according to ONS - image courtesy of Depostphotos.
Price increases were seen across a wide variety of raw materials, including chemicals, food products, metals, oil, paper and plastics – image courtesy of Depositphotos.

“With an increasing reliance on exports for growth, what manufacturers need to see sooner rather than later is a Brexit transition deal to avoid the risk of a more cautious and uncertain approach to investment from the sector.”

Dave Atkinson, UK head of manufacturing at Lloyds Bank Commercial Banking, commented: “While the PMI has dropped for a second consecutive month, it remains above the long-term average. It is also higher than the most recent construction and services PMI readings, suggesting manufacturing remains the star pupil in the wider UK economy.

“Firms are still buoyed by strong order books and this positivity is being acted on too. Our recent Business in Britain survey of 200 manufacturers revealed a third had plans to invest in their businesses and a quarter intend to create new jobs over the coming year.

“The UK continues to evolve its manufacturing capabilities with investment in Industry 4.0 bringing real innovation to firms who are adapting how they work.

“Uncertainty about the UK’s exit from the EU remains, but, as we’ve seen over the past 18 months, firms are used to facing into challenges and are making the most of new opportunities at home and abroad.

“Meanwhile, the evidence is that manufacturers are doing more than just capitalising on the devaluation of sterling after the UKs decision to leave the EU but are looking to build long-term meaningful relationships across the world as export growth has continued.”

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