U.K. manufacturing sees further solid growth at end of Q3
Oct. 3, 2017 - The U.K. manufacturing sector continued to expand at a solid clip during September, with production and new orders both rising at above long-run average rates. However, the latest survey signalled that cost inflationary pressures surged higher. This reflected a combination of rising commodity prices, the exchange rate and increased supply-chain pressures.
The seasonally adjusted IHS Markit/CIPS Purchasing Managers’ Index (PMI) registered 55.9 in September, down from August’s four-month high of 56.7, but above its long-run average of 51.7. Data included in the latest PMI report were collected between September 12 to 26.
Manufacturing production rose for the 14th month running in September. However, the rate of expansion eased from August’s recent high, in tandem with growth slowdowns across the consumer, intermediate and investment goods sub-sectors.
Where an increase in output was registered, this was mainly due to rising intakes of new business. Although the latest gain in new orders was slower than the prior survey month, companies reported that demand remained solid in both domestic and overseas markets.
Growth of new export business remained among the best registered over the past six-and-a-half years. There were reports of increased sales to Europe, the U.S., China and Brazil. Some firms also mentioned an ongoing boost from the historical weakness of sterling, although this was less prominent as a factor than earlier in the year.
The outlook for the manufacturing sector also remained positive, with September seeing more than 51 per cent of companies report they expect production to rise over the coming year. Optimism reflected efforts to expand overseas customer bases, improved efficiency, company expansion and investment plans and new product launches.
September saw further job creation at manufacturers. Although the rate of increase was slightly below August’s three-year record, it remained broad-based across the consumer, intermediate and investment goods industries.
Input costs and output charges both rose at faster rates in September. The upswing in purchasing costs was linked to rising commodity prices, the exchange rate and supply chain constraints (such as a lack of vendor capacity and shortages developing for a number of inputs).
This was also reflected in the trend in vendor performance during September, as lead times lengthened to the greatest extent since April 2011. Input cost increases were passed on (at least in part) to clients, leading to the steepest increase in output charges for four months.
“Although it looks as if the sector made solid progress through the third quarter as a whole, the growth slowdown in September is a further sign that momentum is being lost across the broader UK economy. Exports remain a bright spot, however, still rising at one of the strongest rates over the past six-and-a-half years,” said Rob Dobson, director at IHS Markit. “Manufacturing is also increasingly being buffeted by rising cost inflationary pressures, as rising commodity prices and higher import costs from the historically weak sterling exchange rate are being exacerbated by supply-chain capacity constraints and input shortages. This will likely exert further upward pressure on prices, dent profitability and potentially disrupt production schedules in coming months.
“On balance, the continued solid progress of manufacturing and export growth is unlikely to offset concerns about a wider economic slowdown, but the upward march of price pressures will add to expectations that the Bank of England may soon decide that the inflation outlook warrants a rate hike.”
Duncan Brock, director of Customer Relationships at the Chartered Institute of Procurement & Supply, said, “The biggest news this month is the fall in the productivity of manufacturing supply chains as suppliers lost the fight to keep on top of promised delivery times and their performance weakened to the greatest extent for six-and-a-half years. The blame lay squarely at the feet of capacity constraints and some commodity shortages in food, but also other materials such as plastics and steel.
“Though new order growth remained broadly steady with business from both export and domestic markets, and employment levels were on the up, the threat of further inflationary pressures in the coming months continue to be a concern for margins as the sector experienced the highest inflationary rise in input prices for six months.
“In total, manufacturing activity was subdued, displaying a restrained pace of growth, barely moving from last month’s figure. Though optimism was buoyant, supported by business investment, this levelling of activity growth raises fears of a possible entrenchment developing over the coming months if economic conditions fail to improve.”
Hannover Messe 2018
April 23-27, 2018
Smart Manufacturing Experience 2018
April 30-2, 2018
Partners in Prevention Conference 2018
May 1-2, 2018
Energy Summit 2018
May 30-31, 2018
Internet of Manufacturing Midwest 2018
June 5-7, 2018
June 19-22, 2018