UK manufacturing PMI stays strong at end of the year

Growth in output, new orders and employment remained solid and well above long-run trends, according to the latest Markit/CIPS Purchasing Managers’ Index (PMI).

Growth in output, new orders and employment remained solid and well above long-run trends, according to the latest Markit/CIPS PMI – image courtesy of Pixabay.

The seasonally adjusted IHS Markit/CIPS Purchasing Managers’ Index® (PMI ® ) posted 56.3 in December, down from November’s 51-month high of 58.2.

The headline PMI has now remained above the 50.0 no-change mark for 17 consecutive months. The average reading over the final quarter of 2017 (57.0) was the best since the second quarter of 2014.

Manufacturing output and new orders have both expanded throughout the past 17 months. Companies reported that production was scaled up in response to solid inflows of new work and the launch of new product lines.

The index has shown that output growth accelerated in the intermediate and investment goods sectors, but slowed at producers of consumer goods.

The strongest pace of expansion overall was registered in the intermediate goods category. Part of the increase in new business at UK manufacturers reflected a solid increase in new export sales.

Improved demand from clients abroad 

Demand improved from clients in Europe, the USA, China and the Middle East. Rising intakes of new work tested capacity, leading to a modest increase in outstanding business.

These in turn encouraged companies to raise employment, with job creation registered for the seventeenth month in a row.

Investment goods producers reported a strong increase in staff levels. The expansion was solid in the intermediate category, but only slight in the consumer goods sector. The rate of increase in input costs eased to a fourmonth low in December, but remained marked overall.

Companies linker higher costs to rising raw material prices, input shortages, suppliers raising their prices and the exchange rate. The cost of chemicals, electrical goods, electronics, metals, paper, plastics, timber and utilities were all reported as higher.

Part of the increase in purchase prices was passed on in the form of higher output charges in December. Selling prices rose for the twentieth successive month. Companies also linked the latest increase in charges to stronger demand.

UK manufacturers maintained a positive outlook in December, with close to 54% of companies reporting that they expect production to rise over the coming year.

Positive sentiment reflected investment in capacity and machinery, expected growth in domestic demand and export sales, new product launches and efforts to increase market share.

The latest comments:

Dave Atkinson, UK head of manufacturing at Lloyds Bank Commercial Banking, said: “It is disappointing to see a drop in the latest PMI figure but it still suggest a sector in good health as we start 2018. Order books are close to a 30-year high and firms are forecasting growth, too, with recent ONS data showing a surge in the UK’s manufacturing output.

“Concerns that businesses were driving exports largely as a result of the weakened pound are abating, with evidence of lasting relationships with new supply chains abroad, showcasing the full potential of the UK’s manufacturing capabilities.

“With EU trade talks set to begin this year, it brings with it the prospect of greater clarity for the UK’s future trading relationships with key export markets.

“Although headwinds remain in the form of persistently high inflation, pushing up the price of materials, along with reports of relatively weak consumer demand, this reading nevertheless suggests the sector is well-set for growth this year.”