UK businesses finish 2015 on a high

Posted on 4 Jan 2016 by Callum Bentley

Economic growth across the private sector picked up in the three months to December, according to the latest CBI Growth Indicator.

M&A deals were up in 2014 and the volume remained high in the fourth quarter of 2014 (image courtesy of DFC).
The balance of firms reporting rising output was +20%, compared with +13% in November, well above the long run average of +5%.

The survey of 766 respondents – which comprises economic activity across manufacturing, retail and business & consumer services sectors – found growth improving following weaker figures reported last month.

The balance of firms reporting rising output was +20%, compared with +13% in November, well above the long run average of +5%.

Recovering growth across the retail and wholesale sectors was buttressed by a strong year-end among business and professional services – though manufacturers, especially exporters, continue to face difficult times.

Overall, the economy is expected to grow at a similar pace over the coming three months (+20%), well above the long-run average (+10%).

Carolyn Fairbairn, CBI director-general, said: “The UK economy has finished the year strongly, with business services acting as a lightning rod for growth.

Carolyn Fairbairn, Director General, CBI
Carolyn Fairbairn, director-general, CBI.

“Nonetheless, there is no room for complacency in 2016 as significant challenges to global growth remain. Many emerging markets are facing a testing time, with China moving to a slower growth path and other emerging economies being buffeted by low commodity prices, capital outflows and currency depreciation.

“The picture differs markedly by sector. Manufacturers are having a tough time, with the strength of sterling hitting their competitiveness in the Eurozone and the slowdown in emerging markets weighing on export demand. And the North Sea industry and its suppliers are feeling the impact of falling global oil prices.”

“Ultimately, employers want relief from the cumulative burden that could harm the UK’s competitiveness, as the combined effect of the introduction of the apprenticeship levy and the national living wage begins to bite against the backdrop of unreformed business rates and the administrative challenge of pensions enrolment.”

UK Manufacturing PMI: December 2015

The end of 2015 saw the UK manufacturing sector’s rate of growth dip further from the recent peak reached in October.

According to the latest Markit/CIPS Purchasing Manager’s Index (PMI), December’s score of 51.9 was a return towards the long-run survey average of 51.5.

The results for December offered a mixed review. Manufacturing production rose for the 33rd month running thanks largely to higher intakes of new business from both domestic and export clients; new export orders rose for the fourth consecutive month, and employment rose for the 30th time in the past 32 months.

The average readings over the final quarter as a whole – the headline PMI; Output Index; New Orders Index; New Export Orders Index, and Employment Index – may have been above their respective averages, however, averages over 2015 were in each case below those achieved in 2014.

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

Chief economist at EEF, Lee Hopley commented: “December’s PMI reading points to manufacturing ending 2015 with neither a bang nor a whimper.

“Activity levels appear to have been holding up in line with the long-run average as output and new orders tick over, and no more.

“With the CIPS report confirming our view that manufacturing output is likely to be flat over 2015 as a whole, the question now is whether the sector can regain much needed momentum in 2016.

“Industry PMI readings from Europe offer a few reasons for optimism that a recovery across the region will finally start to benefit UK exporters, but further weakening in China is likely to be a counteracting force into 2016.”

Mike Rigby, head of manufacturing, Barclays.
Mike Rigby, head of manufacturing, Barclays.

Head of manufacturing at Barclays, Mike Rigby noted: “2015 was a challenging year for the sector as manufacturers sought to remain competitive and hold their profit margins.

“With export orders, hampered by the strength of sterling and a sluggish Eurozone, only recently showing signs of improvement, domestic demand continues to be the main driver of growth.

“As we enter 2016, vital investment, differentiation of products on quality/service and a firm eye focused on costs should be top of manufacturers’ New Year resolution lists.”