UK manufacturing growth robust, but price pressures remain

The UK manufacturing sector started the final quarter of 2017 on firm ground, with output and new order growth remaining robust, the latest Markit/CIPS Purchasing Managers’ Index has revealed.

Stock UK Automotive Industry Worker Factory Line UK manufacturing Drive Midlands
The headline PMI has now signalled expansion for 15 consecutive months.

UK manufacturing companies benefited from strong domestic market conditions and rising inflows of new export business. The Purchasing Managers’ Index (PMI) rose to 56.3 in October, slightly up on September’s 56.0.

The headline PMI has now signalled expansion for 15 consecutive months.

However, price pressures remained elevated, with rates of inflation in input costs and output charges both accelerating and staying well above historical averages.

Chief economist at EEF, Lee Hopley explained: “Manufacturers had a stronger start to the fourth quarter than some forecasters were anticipating, with the latest PMI remaining significantly north of its long-term average.

“Backing up what we’re hearing from industry, the investment and intermediate goods sectors are in the driving seat, with consumer facing sectors coping with challenged household incomes.

“Continuing the trend seen in survey data this year, strong production levels are continuing to translate into higher employment across manufacturing. Importantly, coming ahead of the Monetary Policy Committee’s November meeting, indications of persistent price and capacity pressures would support the hawk’s view that the time is right for a rate rise.”

Head of Manufacturing at Barclays, Mike Rigby commented: “Month after month, manufacturing continues to hold its own delivering growth levels that keep the sector in positive territory.

“Although demand from both home and overseas markets remains robust, manufacturers will have half an eye on what the Monetary Policy Committee decides to do tomorrow and the potential impact an interest rate rise would have on sterling.

“They will also be looking ahead to the Autumn Statement and what that may bring by way of a boost for the sector and I suspect many will be looking for R&D tax credits to feature and encourage a much needed increase in investment.”

UK head of manufacturing at Lloyds Bank Commercial Banking, Dave Atkinson said: “While the ongoing Brexit negotiations are causing uncertainty, recent CBI data shows orders and outputs are above historic levels, and similar trends are seen in exporting data. Firms’ plans for investment in innovation remain strong, as does spending on training and development.

“In order to keep growing, it’s important businesses think about boosting productivity and take steps to create growth opportunities, whether that is looking at new export markets or taking steps to improve efficiency, freeing up capital to invest.

“The government’s Made Smarter review out this week argues that the sector can benefit hugely by harnessing industrial digital technologies. It could help raise productivity and create jobs, as well as unlock more than £455bn for the UK economy.”