Positive signs from manufacturing

The latest IHS Markit/CIPS UK Manufacturing PMI® statistics have been released. This month’s figures make for positive reading, with output and orders growing, despite rising prices putting pressure on the sector.

The figures sit at 56.3 for October, a slight rise on September’s figures of 56.0, giving the UK manufacturing sector a solid start to the final quarter of the year.

These latest figures signal 15 consecutive months’ of expansion, showing manufacturing has remained solid throughout political and economical turmoil.

Production and new order volumes have continued to rise at robust rates, with companies benefitting from a strong domestic market and rising inflows of new export business.

Price pressures remained elevated, however, with rates of inflation in input costs and output charges both accelerating and staying well above historical series averages. New export business continued to rise, with respondents showing improved intakes of new work from clients in the USA, mainland Europe, South America and Australia, in some cases aided by the sterling exchange rate.

While in the consumer goods category, confidence is less solid, with growth of new orders easing to a seven-month low and business optimism to its weakest level in the year-to-date.

With orders still growing, this has been reflected in the labour market, with job creation increasing for the 15th successive month, and at a 40-month high. Staffing levels were raised to cope with increased production requirements, company expansion plans and to meet expected future demand growth.

Over 50% of manufacturers forecast output will be higher in one year’s time, compared to only 8% who anticipate a decline.

Comments Rob Dobson, Director at IHS Markit, which compiles the survey: “UK manufacturing made an impressive start to the final quarter of 2017 as increased inflows of new work encouraged firms to ramp up production once again. The sector looks to be achieving a quarterly rate of expansion close to one per cent, therefore sustaining the solid pace of growth signalled by the official ONS estimate for the third quarter. The domestic market remained strong, whereas new export orders increased at a slightly slower pace, the latter showing signs of being hit by the recent strengthening of sterling.

“Price pressures continued to build, however. Input costs rose at the fastest pace in seven months, leading to the steepest rate of selling price inflation since April. Higher demand for raw materials, combined with increased supply-chain constraints, mean annual input price inflation is moving back into double-digit rates, which may feed through to higher pressure on consumer prices in coming months.

“The continued robust health of manufacturing and rising price pressures will help cement expectations of the Bank of England hiking interest rates for the first time in a decade as Thursday’s announcement approaches.”

Duncan Brock, Director of Customer Relationships at the Chartered Institute of Procurement & Supply: “It’s good to see the manufacturing sector holding strong and steady in October, buoyed up by an increase in new orders from the domestic market and improving on last month’s results. While trade from export markets slowed slightly, orders from overseas continued to rise for the 18th month supported by a robust global economy. The pound’s fluctuating performance may have had some bearing on the softening in export orders, but there were continuing good levels of demand from Europe and the USA so no cause for concern.

“However, one note of caution surrounds the endless onslaught of inflationary pressures. Input prices increased to their highest level for seven months as commodity prices rose and intense competition for raw materials also had a cost impact. The rush to buy from depleting supplier stocks and significant delays in delivery times reported by almost a fifth of respondents showed that supply chains have started to creak under the strain.

“As previously delayed projects were given the green light, there was a rise in positivity in the sector paired with a strong optimistic upsurge in employment levels not seen for over three years.

“But this laid-back start to the first quarter should not lull anyone into a false sense of security as the Brexit negotiations are still causing some jitters amongst clients. But the sign of the times point to measured and muted growth as we approach the year’s end.”

 

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