UK manufacturing produces a strong start for 2015

Posted on 2 Mar 2015 by Jonny Williamson

UK manufacturing’s growth rate continued to strengthen at the start of 2015, with the Markit/CIPS Purchasing Manager’s Index (PMI) rising to a seven-month high of 54.1 in February, up from 53.1 in January.

Affording a further boost to job creation, companies benefited from solid inflows of new business from the domestic market, which offset lower new export order volumes.

Key points:

  • Growth rates in output and new orders both strengthen
  • Domestic market remains solid, but export orders decrease
  • Input costs and output prices fall further

February saw the rate of expansion in manufacturing production accelerate for the third month running to its highest since June 2014; led by the consumer goods industry. Manufacturers reported a further improvement in new order inflows during the month, underpinned by rising volumes of new business from domestic based clients.

In contrast, export performance deteriorated for the fourth time in the past five months, reflecting subdued conditions in key markets and the sterling exchange rate.

February data signalled an increase in UK manufacturing employment for the twenty-second successive month. Moreover, the rate of jobs growth accelerated to a three-month high and was broadly in line with the average for the current sequence of expansion.

David Noble, group CEO, Chartered Institute of Procurement & Supply.
David Noble, group CEO, Chartered Institute of Procurement & Supply.

David Noble, group CEO at the Chartered Institute of Procurement & Supply commented: “The rising levels of job creation, now in their twenty-second month, demonstrate that the sector is in buoyant mood this month. This is good news for the UK economy as higher staffing levels mean more opportunity for economic expansion.

“With faster growth in new orders than at the beginning of the year, this increased momentum is once again attributed to the domestic market, as export orders lag behind. Though there was some growth in the eurozone and elsewhere, this did not translate strongly enough to support increased new export orders.

“Backlogs were reduced in response to this new landscape of recovery, and with higher levels reported on finished goods, the sector looks set to continue along a positive trajectory in the months ahead.

Rob Dobson, senior economist at survey compilers Markit added: “Output is now rising at a quarterly pace close to 0.5% and job creation is running at a rate of five thousand new positions filled per month. This reinforces the picture of a broader growth revival in the UK so far in the opening quarter.

“Scratching beneath the surface and we see a lopsided upturn, with the prime driver being a strong upsurge in new orders and production at consumer goods producers while a near-stalling of demand for plant and machinery points to ongoing weak business investment.

“Separately, the appreciation of sterling is holding back the progress of UK exporters. It seems that, despite years of talk about a rebalancing of growth, we are still seeing only limited headway in moving away from consumer driven expansions and towards a greater contribution from exports.

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

Lee Hopley, Chief Economist at EEF said: “Today’s PMI confirms that the UK manufacturing sector has seen a positive start to the year with accelerating activity raising hopes that output and employment growth will continue in 2015.

“The trends are particularly positive for consumer goods sectors, suggesting that the boost to demand resulting from the drop in the oil price is good news for many manufacturers. However, the PMI also confirms the challenges facing some manufacturers in the oil and gas supply chain – this chimes with our own quarterly findings which show that the impact is particularly evident in order books in the North West and North East regions.

“The persistent weakness in the export component is disappointing but, with small signs of improvement in activity in parts of Europe, a turnaround could be on the horizon.”

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

Mike Rigby, head of manufacturing at Barclays noted: “Today’s figures reinforce what our manufacturing companies are reporting in the way of stronger performance and significant investment in machinery, premises and new product development.  However, what our clients are highlighting as a hindrance to further growth is access to labour, which continues to be a growing challenge for many of them.”

Chris Sumner, managing director at FANUC UK, and VP FANUC Europe commented: “Savings made from lower oil prices resulting in reduced energy costs, has been channeled into other areas of business such as recruitment.

“An investment in talent and the up-skilling of workforces to harness the power of robotics and automation, is increasing productivity and efficiencies throughout the whole manufacturing process, continuing to drive a growth in manufacturing output, specifically within the medical sector.”