UK manufacturing comes storming back

Pland buffing crop
The UK manufacturing industry is looking very positive.

Now might be a good time for catering equipment manufacturers to invest in UK premises, as the latest IHS Market/CIPS Purchasing Managers’ Index (PMI) shows that British manufacturing has hit a 30-month high.

Rates of growth for production and new orders in December were among the best seen over the past 2.5 years. Companies benefited from stronger inflows of new work from both domestic and overseas clients, the latter aided by the boost to competitiveness from the weak Sterling exchange rate.

The headline PMI has signalled expansion in each of the past 5 months. December saw output expanded to meet the needs of stronger new work inflows.

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Employment rose for the fifth consecutive month in December, with the pace of jobs growth accelerating to the fastest in 14 months. SMEs saw the steepest expansion of staffing levels, although large-scale producers registered a modest increase too.

However, price pressures remained elevated in December. Rates of inflation for input costs and output charges both remained among the fastest seen during the survey history, albeit both slowing from October’s highs.

Higher costs were passed on at the factory gate, as selling prices rose for the eighth straight month in December. Steep increases were seen across the consumer, intermediate and investment goods sectors.

Rob Dobson, senior economist at IHS Markit, which compiles the survey: “The UK manufacturing sector starts 2017 on a strong footing.

“Based on its historical relationship against official manufacturing output data, the survey is signalling a quarterly pace of growth approaching 1.5%, a surprisingly robust pace given the lacklustre start to the year and the uncertainty surrounding the EU referendum.

“The boost to competitiveness from the weak exchange rate has undoubtedly been a key driver of the recent turnaround, while the domestic market has remained a strong contributor to new business wins. A plus point from the December survey was that the expansion was led by the investment and intermediate goods sectors, suggesting capital spending and corporate demand took the reins from the consumer in driving industrial growth forward.

“On the prices front, higher input costs continued to feed through to increased selling prices, with rates of inflation remaining among the highest seen during the survey history. Of the companies citing a cause of higher costs, 75% linked the increase to the exchange rate.”

David Noble, group chief executive officer at CIPS (Chartered Institute of Procurement & Supply) added: “Manufacturers enjoyed the stronger economic environment and consequently raised production at a robust pace, while finding room to increase purchasing activity at the strongest rate for 2.5 years.

“The stimulus for growth came from new order wins in both domestic and overseas markets. The rates of growth remained marked, while new export orders were boosted by the sustained weakness of the pound. Some respondents commented on an increase in orders from India, China, the US and EU.

“This fervent activity placed suppliers under greater pressure. Supplier delivery times lengthened for the eighth month in a row, with manufacturers reporting raw material shortages as placing strains on vendor performance. Backlogs of work also increased for the first time since February 2014.

“The impact of rising input costs continued to be felt, as the rate of cost inflation stood at one of the highest in the survey’s 25-year history. However, this did not deter manufacturers from leveraging their buying capability and increasing their input orders – the fifth month in succession. In fact, the rate of stock building reached its fastest for 6 years, partly to counteract future expected price increases in raw materials and any possible shortages in the year ahead.

“This fizz in new orders signals good news for UK manufacturers which has previously been hit by uncertainties following the EU referendum, and the sector looks set to reach a more robust growth path at the start of 2017.”

Tags : british manufacturingmanufacturingSurveys
Clare Nicholls

The author Clare Nicholls

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