Modest growth for UK manufacturing during start of 2016

Posted on 1 Feb 2016 by Jonny Williamson

UK manufacturing experienced a modest improvement in the rate of growth in January, according to the latest Markit/CIPS Purchasing Manager’s Index (PMI).

January saw the PMI rising to a three-month high of 52.9, following on from December’s slightly lower score of 52.1.

The latest results mean that the PMI has remained above the neutral 50.0 mark – with any figure over 50 indicating growth – for 34 consecutive months.

Manufacturing production increased during January, which reportedly reflects improved inflows of new work from the domestic market. Also, the rate of expansion in output accelerated to a 19-month high.

On a less positive note, the level of new export orders fell back into decline.

Lee Hopley, chief economist, EEF.
Lee Hopley, chief economist, EEF.

Chief Economist at EEF Lee Hopley commented: “At face value, today’s data got 2016 off to an encouraging start with activity levels improving a little on the back of a pickup in new orders, with domestic demand compensating for, once again, lacklustre export orders.

“But, looking beyond the headline there’s conflicting signals, with growth drivers narrower in terms of sub-sector and size, and manufacturing posting job losses for the fourth time in the last six months.

“The question now is whether manufacturing will regain much-needed momentum in 2016 or whether today’s figure will prove a false signal. The sector is likely to remain under pressure in the coming months from the ongoing weakness of the oil price weighing on manufacturers embedded in the oil and gas supply chain, along with weak demand from emerging markets.”

Head of manufacturing at Barclays, Mike Rigby noted: “Today’s figures may provide the sector with a bit of a fillip [boost], but it continues to be domestic demand driving growth with exports again disappointing.

Mike Rigby, head of manufacturing, transport and logistics, Barclays.
Mike Rigby, head of manufacturing, transport and logistics, Barclays.

“Manufacturers are used to tough times and remain resilient and with a sharp eye on costs and effective cost control plus the returns on good investment made over the past few years, operators will see out the current challenging climate. However, any temptation by businesses to protect cash and guard investment should be avoided as we wait for more normalised trading conditions to materialise.”

Head of manufacturing at Lloyds Banks Commercial Banking, Dave Atkinson said: “It is encouraging to see resilience amongst British manufacturers despite uncertainty over the potential Brexit and weaker international trade conditions, and Britain’s makers continue to outperform a number of other G7 members.

“The automotive industry is particularly buoyant, having made more cars in 2015 than in any other year since 2005. Manufacturers are telling us that they are reaching capacity on current resources, which is driving a need to invest in plant and machinery and automation to improve productivity and take advantage of the huge opportunities in the automotive supply chain.

David Atkinson, head of Manufacturing - SME, Lloyds Bank Commercial Banking.
David Atkinson, head of Manufacturing – SME, Lloyds Bank Commercial Banking.

“Despite the uncertainty in some key emerging markets, demand so far appears to be holding up, though manufacturers will be cautious as to how long this headwind could last.

“Continuing to support firms throughout economic fluctuations remains crucial if Britain’s manufacturers are to remain a leading force in the global marketplace.”

CBI Growth Indicator

Today also saw the release of the latest CBI Growth Indicator, which revealed that UK economic growth weakened in the three months to January, with modest expectations for the next quarter.

The survey of 759 respondents across the manufacturing, retail and services sectors showed the pace of growth dropped to its slowest rate since May 2013 (when the balance was +2%), with a balance of +6% of firms reporting a rise in output.

The outlook for the next three months is more positive, with an above average rise in output (+13%) expected.

Rain Newton-Smith, director of Economics, CBI
Rain Newton-Smith, director of Economics, CBI

CBI director of economics, Rain Newton-Smith said that the economy has had a “tough start” to year.

She continued: “Manufacturing and business and professional services have struggled to make a mark, but a healthier picture can be seen in the household-focused consumer services and retail sectors.

“The overall domestic outlook still looks fairly secure, and a rise in output across all sectors is expected in the coming three months. Low inflation, strong employment growth and rises in real pay also put households in a good position.

“But we’ll need to keep watch on whether slower growth in parts of the service sector is the start of something more prolonged, particularly in light of global financial market volatility.”