UK manufacturing growth gathers pace over August

The rate of growth experienced in the UK manufacturing sector has again risen, according to August’s seasonally adjusted IHS Markit/CIPS Purchasing Managers’ Index (PMI).

Manufacturing growth now sits at 56.9 – a notable increase on July’s figure of 55.3 and, encouragingly, its second highest reading for more than three years.

Strong performance across all five PMI criteria – output, new orders, employment, suppliers’ delivery times and stocks of purchases – has given UK manufacturing a much-needed shot in the arm at a time when economic uncertainty is the norm.

Intriguingly, while the domestic market accounted for the majority of new orders, August was one of the strongest months on record for international business. Manufacturers are now seeing more opportunities from mainland Europe, the USA, China and Australia.

This positivity has also filtered through to employment, with the rate of job creation its quickest since June 2014.

The good news was tempered somewhat by a telling rise in purchase prices however – the first such increase for over seven months. Almost 31% of respondents reported a surge in purchase prices, which many linked to the rising cost of commodities.

But August was a broadly positive month overall. Business optimism soared to a three month high, with over half of all respondents expecting output to be higher a year from now, in comparison to less than 7% forecasting a decline.

“The UK manufacturing sector continued to show signs of solid progress during the third quarter, with rates of expansion in output, new orders and employment all gathering pace in August,” said Rob Dobson, Director at IHS Markit.

“The key question is whether this positive start to the second half of the year can be sustained. This is looking increasingly likely during the near-term, given the breadth of the expansion. Business conditions improved across the three main sub-sectors – consumer, intermediate and investment goods – and at smaller and large-scale producers alike. Business confidence also rose to one of its highest levels in over a year.

“There are increasing signs of supply-side issues leading to raw material and staff shortages, which could become a constraint on output growth going forward, while also leading to higher costs. However, at the moment, the survey data suggests that the manufacturing economy remains in good health despite Brexit uncertainty, and should help support on-going growth in the economy in the third quarter, which will add fuel to hawkish policymakers’ calls for higher interest rates.”

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