UK manufacturing output climbs to 10-month high

Posted on 1 Sep 2016 by Jonny Williamson

Purchasing activity within UK manufacturing has experienced a “solid rebound” from the downward trends of late, with an influx of production and new orders, according to the latest Markit/CIPS Purchasing Manager’s Index (PMI).

UK manufacturing scored 53.3 on the Markit/CIPS PMI, a 5-point increase on July's 48.3 - image courtesy of DFC.
UK manufacturing scored 53.3 on the Markit/CIPS PMI, a 5-point increase on July’s 48.3 – image courtesy of DFC.

Following July’s 41-month low of 48.3, a PMI score of 53.3 for August would indicate that UK manufacturing was on the road to recovery – with the 5-point month-on-month increase the joint-greatest in the survey’s 25 year history.

The gains regarding output and new orders were also reportedly among the steepest on record.

The solid level of new work received underpinned much of the gain as UK manufacturing companies benefited from “improved inflows of new work from domestic and overseas clients.”

There were also reports of stronger demand, product launches and customers committing to new and previously postponed UK manufacturing contracts.

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

Chief economist at EEF, Lee Hopley explained: “Manufacturers, unnerved in July by the referendum outcome, appear to have their mojo back in August.

“Business has carried on as normal and the weaker exchange rate is providing support for exporters in a broad range of markets in fairly short order. However, as anticipated, the fall in Sterling has also led to a rapid increase in input costs and the pass-through to inflation will surely follow.

“Today’s data provides a lot of relief that manufacturing activity is still on the up. But the heightened volatility in the indicator in the last couple of months still raises questions about whether sentiment has overshot somewhat and, rather than this pace of expansion being sustained, some moderation is likely in the coming months.”

An issue which Mike Rigby, head of manufacturing at Barclays appeared to agree, noting: “With rising input costs starting to feed in and upside price pressure on fuel costs, we may see margins squeezed as we approach 2017.

“This uncertain outlook directly affects longer term investment decision-making which will be a growing concern for the industry.”

Stephen Cooper, partner and head of industrial manufacturing in the UK, KPMG.
Stephen Cooper, partner and head of industrial manufacturing – UK, KPMG.

Head of UK manufacturing at KPMG, Stephen Cooper warned: “One swallow does not a summer make, and as autumn progresses, we will see if this is a blip, or whether it’s the start of a long-term trend.

“UK manufacturers need to continue to use the momentum of their newfound competitive price for as long as possible, and, as ever, to continue to practice careful management, and accurate forecasting of the supply chain, particularly with the unwelcome pickup in input pricing reported this month.”

Andy Hodgson, head of drives & motion control at Siemens UK&I in response, welcomed the figures for August with “cautious optimism”, adding: “While the good news has undoubtedly been influenced by better export conditions for UK manufacturers, there is no doubt we should expect continued market volatility for the near future. And, as always, a continued focus on growing productivity across industry still remains essential.”

Steve Lindsey, chief executive of Midlands engineering firm, Lontra, noted: “For home-grown high growth engineering firms, today’s figures reflect in part the benefit of increased overseas revenues from a weakened Sterling.

Steve Lindsey, founder & CEO, Lontra – image courtesy of Lontra.
Steve Lindsey, founder & CEO, Lontra – image courtesy of Lontra.

“In parallel to this, we need to ensure that we remain attractive to the world’s best engineers so that we can continue to recruit them from both home and abroad, as we have done successfully to date.”

Dave Atkinson, head of manufacturing at Lloyds Bank Commercial Banking, said: “British manufacturers have responded to the post-EU Referendum landscape by adopting a positive mind-set and adapting to the conditions in front of them to source new opportunities for their business.

“Growth is being driven by exporters, with manufacturers experiencing increased demand for goods from both existing markets and unchartered territories due to the weakened pound.

“The manufacturing community has been agile in its response to this influx of orders, and cementing long-term relationships with new markets could have a significant impact on economic growth in the coming months and years as the outcome of leaving the EU is played out.”

(2016) James Selka - CEO, MTA
James Selka, CEO, MTA.

Welcoming the announcement, CEO of the Manufacturing Technologies Association (MTA), James Selka said: “Clearly the current exchange rate is having a positive effect on exports, MTA members have told us that it has made their products more competitive in global markets.

“That is good news in the short term, but in order to build on it the industry has to invest in new technology to be more productive and stay ahead of the competition. We’re confident that they will do that. While the politicians deliberate, Britain’s manufacturers are getting on with the job.”