UK manufacturing PMI at three-year high

Posted on 2 May 2017 by Jonny Williamson

Purchasing activity within UK manufacturing rose to a three-year high in April, with production expanding at the fastest pace in three months, according to the latest Markit/CIPS Purchasing Managers’ Index (PMI).

UK Manufacturing Engineering Automotive Line Stock Image
The threat posed by out-of-date working time practices looms large.

A strong start to 2017 was sustained in April, with the a PMI score of 57.3, up significantly on March’s four-month low of 54.2.

Rates of expansion in output, total new orders and new export work all rose, reportedly underpinned by robust business confidence and helping to generate further job creation.

The PMI has now signalled expansion for nine consecutive months, having not registered below the no-change mark of 50.0 since July 2016 – the month following the EU referendum vote.

UK manufacturing output was driven higher by the strongest inflows of new work since January 2014, with the domestic market remaining the primary source of new contract wins.

Further afield, there were also reports of a solid increase in new export business – the twelfth successive rise, reflecting the combination of stronger global market conditions and the weak sterling exchange rate. Highest demand reportedly came from North America, Europe, Africa and Brazil.

Depreciation challenges

On the flipside, the weak sterling exchange rate also continued to have impact adversely on UK manufacturers’ costs. The rate of purchase price inflation remained elevated and above the long-run survey average, despite easing to a nine-month low.

Companies stated paying higher prices for a broad range of materials, including chemicals, plastics and metals. Part of the rise was attributed to supply chain pressures experienced by vendors, alongside vendors struggling to meet rising demand for raw goods.

According to senior economist at survey compiler, IHS Markit, Rob Dobson, the biggest question regarding UK manufacturing is whether or not the current growth can be maintained.

He noted: “Other surges seen since the middle of last year have generally proved short-lived, as weak wage growth sapped consumer spending. If this happens again, it will inevitably constrain manufacturing, even as the investment and intermediate goods producing sectors continue to expand.”

Expert comment

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

Chief economist at EEF, Lee Hopley: “Following the strong first quarter for manufacturing today’s PMI confirms that lift off continued at the start of the second, with the surge in the pace of expansion partly thanks to the resilience of the UK order pipeline and the fact the global economy is investing again.

“Against all expectations nine months ago, UK manufacturing appears to be in rude health, having navigated significant exchange rate swings and rising input costs, companies are capitalising on the upswing in the world economy and pressing ahead with some new investments. While all the indicators are pointing to the potential of another year of decent growth for manufacturing, the importance of a comprehensive and enduring industrial strategy for the UK must not get lost in the noise of election campaigning.”

David Atkinson, head of UK Manufacturing - SME, Lloyds Bank Commercial Banking.
David Atkinson, head of Manufacturing – SME, Lloyds Bank Commercial Banking.

UK head of manufacturing at Lloyds Bank Commercial Banking, Dave Atkinson: “The manufacturers we’re speaking to are confident but cautious and even the prospect of a general election in five weeks’ time does not seem to have worried them unduly given the result will mean a government in power until 2022. This mood appears to be reflected in the PMI data.

“While the pound remains weak and is undoubtedly pushing up import costs, we are seeing a spike in businesses seeking support to export and capitalise on overseas buyers’ appetite for goods priced in sterling. Welcome as this is, though, policymakers will be mindful that long-term export strength cannot be predicated on a weak currency alone.

“Meanwhile, manufacturers that sell directly to the public are sounding notes of caution as rising inflation and wider fears about a slowing economy appear to be negatively impacting consumer sentiment, a key driver of growth.

“Yet we shouldn’t lose sight of the fact the UK manufacturing sector has been relatively robust in the wake of the EU referendum and growth remains significantly above the long-run average.”

Mike Rigby, head of manufacturing, Barclays.
Mike Rigby, head of manufacturing, Barclays.

Head of manufacturing at Barclays, Mike Rigby: “The UK economy as a whole may have made a sluggish start to the year but following a solid first quarter, manufacturing continues to grow with healthy order books and encouraging levels of new investment and employment.

“Despite some easing, inflationary pressures will continue to take their toll on factory gate prices and ultimately manufacturers’ margins, however, the weakness in sterling and an improving global outlook continue to provide export opportunities for the sector.

“What we don’t want to see now is the prospect of fractious Brexit negotiations fostering a more cautious and uncertain approach to investment from the sector.”