UK manufacturing PMI at highest level in over four years

Posted on 1 Dec 2017 by Jonny Williamson

Growth in UK manufacturing hit a four-year high in November, according to the latest Markit/CIPS Purchasing Managers’ Index (PMI).

The PMI is an indicator of the economic health of the manufacturing sector.

The seasonally adjusted IHS Markit/CIPS Purchasing Managers’ Index (PMI) rose to 58.2 in November, up from 56.6 in October (originally reported as 56.3), its highest level since August 2013.

The index unveils that manufacturing production expanded at the fastest pace since September 2016 and to one of the greatest extents during the past four years.

Companies linked this to stronger inflows of new orders, reflecting solid domestic demand and steeper gains in new export business.

Higher sales to clients in Europe

Some companies noted higher sales to clients in Europe, the Americas, Asia and the Middle East.

The index also shows that the historically weak sterling exchange rate continued to boost export competitiveness (although mentions of this were less prevalent than earlier in the year).

The expansion remained broad-based by subsector. Strong and accelerated growth of production and new orders was registered across the consumer, intermediate and investment goods industries.

The index unveils that investment goods producers saw an especially marked increase in new orders, the sharpest seen since August 1994.

Rising demand for man-power

Backlogs of work at UK factories increased for the first time in six months during November. Tighter capacity combined with rising demand encouraged companies to increase employment.

The index demonstrates that staffing levels rose for the sixteenth successive month, with the rate of jobs growth the highest since June 2014.

November saw purchasing costs rise at a pace close to October’s seven-month high, reflecting increased commodity prices (including for oil and steel), exchange rate effects and higher vendor prices due to supply-chain constraints.

The latter was also highlighted by a further substantial lengthening in average supplier delivery times.

Pricing power boost

Output charges continued to rise at a substantial clip, the fastest for seven months and among the highest during the past six-and-a-half years.

Companies linked the latest increase to stronger demand boosting their pricing power and the passthrough of rising costs to clients.

Manufacturers maintained a positive outlook for the sector in November, with over 50% expecting production to be higher in one year’s time. Optimism was linked to company growth plans, capital spending, improving market conditions and efforts to grow client bases.

Comments from experts:

Mike Rigby, Head of Manufacturing at Barclays: “Following the buzz created around the Industrial Strategy at the start of the week, today’s stats continue the momentum with manufacturing reporting robust figures for November.

“The benefits from a weak sterling and an improving global economy are filling order books and manufacturers remain confident.

“That said, we mustn’t overlook that cost challenges continue to pose a threat, not only from elevated import costs but also from the growing effect of domestic costs from sources such as energy and staffing which will all contribute to inflationary pressures.

“What the sector needs now is manufacturers following through, more and quicker, on investment intentions, particularly in areas such as smart tech, which is vital if the sector is to boost productivity and remain competitive at an international level.”

Justin Benson, UK Head of Automotive at KPMG: “Whilst the lower pound continues to help competitiveness overseas, the increased orders are mainly due to buoyant global export economies like the EU, US and China.

“UK manufacturers continue to rise to the challenges set by their customers around the world despite the uncertainty of Brexit.

“However, the sector is sweating existing assets to meet this higher level of demand. Investment in new plants and assets, which will increase productivity for delivering the products and services of the future, is reducing considerably as a result of significant business uncertainty.

“For these types of PMI numbers to continue, the government needs to publish details of an EU trade deal as soon as possible or longer-term investment (in new models, products etc) will either continue to reduce, or worse, go elsewhere.”