UK manufacturing growth falls to 17-month low in April

Posted on 1 May 2018 by Jonny Williamson

The upturn in the UK manufacturing sector slowed further at the start of the second quarter, according to the latest Markit/CIPS Purchasing Managers’ Index (PMI).

The latest PMI provided further evidence of a slowdown of manufacturing growth – image courtesy of Depositphotos.

Rates of expansion eased for output, new orders and employment, in part reflecting a weakening in the pace of expansion of new work from abroad.

On the price front, input cost and output charge inflation moderated and, although still elevated, are below the highs seen at the turn of the year.

The seasonally adjusted IHS Markit/CIPS Purchasing Managers’ Index® (PMI®) fell to a 17-month low of 53.9 in April, down from 54.9 in March. The PMI has signalled expansion in each of the past 21 months.

Manufacturing production rose for the twenty-first month in a row. Companies reported that output was scaled up in response to higher intakes of new business, stronger client confidence, improved weather, new product launches and increased capacity. And output rose at consumer, intermediate and investment goods producers.

The latest survey provided further evidence of a slowdown in the rate of manufacturing expansion. Growth of output and new orders eased, while business optimism dipped to a five-month low. Falling backlogs of work, supply-chain constraints and rising stocks of finished goods also signalled that output growth will remain subdued in the coming months.

Export business slow to a ten-month low

April also saw growth of new export business slow to a ten-month low. Rates of increase eased in the intermediate and investment goods sectors but strengthened at consumer goods producers. Where improved demand from overseas was reported, companies linked this to higher order intakes from Europe, the USA and Asia.

Manufacturing employment increased in April. The rate of job creation eased to the weakest in 14 months. Staffing levels were raised in the intermediate and investment goods sectors. The consumer goods industry saw its first job cuts since February 2017, with the rate of reduction the steepest in almost six-and-a-half years.

The rate of input price inflation faced by UK manufacturers remained elevated in April, despite easing to a nine-month low. Higher purchasing costs were attributed to increased commodity and raw material prices, in some cases exacerbated by demand exceeding supply. Shortages of certain inputs also led to further substantial lengthening of vendor lead times.

Part of the increase in costs was passed on to clients in the form of higher selling prices in April. However, the rate of output charge inflation eased for the third straight month to the slowest since August 2017.

The latest comments: 

Dave Atkinson, UK head of manufacturing at Lloyds Bank Commercial Banking, said: “Despite the decline, the PMI reading shows the sector remains the engine of the UK economy. Manufacturers are performing well at home and abroad.

“Exporters have built the sector’s reputation as high-quality, high value producers and, complemented by the strengthening global market, firms are now securing even bigger export contracts.

“In turn this is driving growth and investment, which is helping UK manufacturing to out-perform the wider UK economy. And the sector looks set for even further expansion, if its ambitions to create new jobs are realised.”

Mike Rigby, Head of Manufacturing at Barclays, commented: “Today’s data does point to a loss of momentum in the sector but that’s no reason to get carried away just yet.

“Growth in output continues to tick up, albeit slower than in previous months, and new orders and employment remain in positive territory.

“Manufacturers continue to report healthy order books from the ongoing improvement in global export markets and although challenges with the supply-chain are persisting, manufacturers remain optimistic and, as they have proved time after time, they are good at just getting on with business.”

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