Four year high for manufacturing

The latest IHS Markit/CIPS UK Manufacturing PMI® figures have revealed the sector is riding a four year high.

UK Manufacturing PMI saw levels rise to 58.2 in November, with all sectors reporting speedy rises; rates of increase in new orders and production are among the best registered over the past four years. These results tested manufacturing capacity and encouraged further job creation, with employment also rising, hitting its greatest extent since June 2014.

Rising from 56.6 in October, the November reading of 58.2 is the tenth-best registered during the index’s 26-year history. Manufacturing production expanded at the fastest pace since September 2016 and to one of the greatest extents during the past four years.

Respondents to the survey cited stronger inflows of new orders, which reflected solid domestic demand, while some companies also reported higher sales to clients in Europe, the Americas, Asia and the Middle East. The higher export figures are reflective of the weak sterling exchange rate according to some Managers.

By sector, consumer, intermediate and investment goods industries all reported strong growth, with investment goods producers seeing an increase in new orders that was the sharpest since August 1994.

With the increase in orders, a backlog of work at UK factories has increased, although this leading to calls for an increase of employment.

November saw purchasing costs rise at a pace close to October’s seven-month high, reflecting increased commodity prices (including for oil and steel), exchange rate effects and higher vendor prices due to supply-chain constraints. The latter was also highlighted by a further substantial lengthening in average supplier delivery times.

Overall a positive outlook is held by manufacturers, with over 50% expecting production to be higher in one year’s time. Optimism was linked to company growth plans, capital spending, improving market conditions and efforts to grow client bases.

Rob Dobson, Director at IHS Markit, which compiles the survey, said: “UK manufacturing shifted up a gear in November, with growth of output, new orders and employment all gathering pace. On its current course, manufacturing production is rising at a quarterly rate approaching 2%, providing a real boost to the pace of broader economic expansion.

“The breadth of the rebound is also positive, with growth strengthening across the consumer, intermediate and investment goods industries. Of real note was a surge in demand for UK investment goods, such as plant and machinery, with new orders for these products rising to the greatest extent in over two decades. This suggests that capital spending, especially in the domestic market, is showing signs of renewed vigour.

“On the price front, rates of inflation in input costs and output charges remained elevated. Manufacturers have seen supply-chain constraints and rising demand for raw materials overtake exchange rate effects as the primary motivator of price increases. The coming months should provide greater evidence on any impact that the recent interest rate increase from the Bank of England will have on reining in cost pressures.”

Duncan Brock, Director of Customer Relationships at the Chartered Institute of Procurement & Supply: “A festive toast to a positive end after a turbulent Brexit backdrop year. Encouraging global market forces provided the foundation for the strongest rise in activity for 14 months, and a renewed confidence and focus in the manufacturing sector.

“As the impact of the weak pound diminished, businesses were turning their attention to new opportunities, clients, and investment as business optimism flourished from October’s four-month low. However this increase in demand meant suppliers fared less well as delivery times continued to lengthen amidst the scrabble in demand and raw material shortages, leading to further rises in input costs for manufacturers which were then passed on to customers.

“The domestic market remained strong but new export orders primarily from the US and Europe were a big part of this overall picture of success. Job seekers were also winners, with the strongest rise in employment since June 2014, plugging the gap in growing capacity issues.

“We wait with bated breath to see if the EU negotiations manage to derail this accomplished end to the year or lift the sector to new heights with a clear path ahead for the UK.”

 

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