UK manufacturing PMI remains above long-term trend

A strong end to 2016 was sustained over the past month for UK manufacturing with the sector notching up a score of 53.4 for November – slightly down on October’s 54.2, but above the long-run average of 51.5.

November’s score sees the PMI remain above the neutral 50.0 mark for a fourth consecutive month.

Markit/CIPS noted that the negative impact of the exchange was most notably felt on the input cost side, with average purchase prices rising at a pace close to October’s “near six-year record”.

Senior economist at IHS Markit, Rob Dobson commented: “Although the recent growth spurt showed further signs of slowing, the pace of expansion is still solid and above its long-term trend.

“This should be sufficient to ensure manufacturing is a positive contributor to fourth quarter GDP.”

The weak exchange continued to boost manufacturers’ export competitiveness, leading to a boost in overseas business.

However, Dobson warned: “The concern is that higher costs may in time offset any positive effect of the weaker exchange rate, especially given that export order book growth has already waned markedly from September’s five-and-a-half year high.”

Senior Economist at EEF, George Nikolaidis explained: “While manufacturing activity lost some momentum after solid post-referendum gains in the previous months, this doesn’t change the picture of improving fundamentals across manufacturing sub-sectors over the course of the year.

“Exchange rate pressures are at the centre of both opportunities and challenges facing the sector. While the more competitive exchange rate means UK manufacturers are well positioned to capitalise on the recovery in demand in key export markets, higher input costs are coming through the manufacturing supply chain thick and fast to put the squeeze on profit margins. Manufacturers are inevitably looking to pass these costs on to customers adding to the inflationary pressures already building up in the UK economy.”

Head of Manufacturing at Lloyds Bank Commercial Banking, Dave Atkinson said: “This performance demonstrates the ongoing resilience of the sector, as well as its ability to be agile in maximising opportunities amid a backdrop of rising input costs and the weaker pound.

“Going forward, an industry-wide improvement in productivity is important as Britain looks to match the progress of its G7 peers in order to compete fully on the global stage.

“The recent Lloyds Bank Productivity Report has highlighted that improving production rates is seen by businesses as the number one reason to invest, with two thirds of firms having already formed a plan for productivity growth. These findings, together with the focus on productivity announced in the Chancellor’s Autumn Statement, suggest there are reasons for optimism when it comes to ensuring that manufacturers can boost outputs and profitability.”

Head of Manufacturing at Barclays, Mike Rigby commented: “Although down on last month, today’s figures are still encouraging and chime with the talk from the factory floor where manufacturers continue to fulfil healthy order books.

“Exporters continue to take advantage of a weak sterling but it is increasingly looking like a case of having to take the rough with the smooth as businesses start to pass on higher import costs, which could accelerate inflationary pressures as we enter 2017.”

Head of manufacturing at KPMG UK, Stephen Cooper said: “Although UK manufacturing growth felt a slight chill in November, the Christmas bells are ringing for a positive end to the year as the sector looks set to contribute to economic growth for the fourth quarter.

“As expected, the exchange rate continues to support UK competitiveness, both globally and domestically, with increased demand being seen from the US, Middle East and mainland Europe. Importantly for the UK, employment has risen for the fourth month in a row, however, the downside this month is a continued rise in the cost of inputs. Average purchase price rose at one of the fastest rates in survey history, and whilst some of this was passed on at the factory gate, manufacturers also bore some of the brunt.

“Given that the order book growth has dropped markedly since September, these higher costs may offset the positive effects of the exchange rate. In this climate of great uncertainty, manufacturers must, as always, keep a tight control of their cost base.”