UK manufacturing sector still optimistic despite slowing growth

Here’s what was said

The UK manufacturing sector slowed in March 2017, but performance remains strong and figures remain above average.

The latest Markit/CIPS UK Manufacturing Purchasing Managers’ Index (PMI) posted at 54.2 in March 2017, lower than February’s figure of 54.6; displaying a slowdown in output and new order growth since the record results seen at the end of 2016.

“Growth rates in the sector have cooled somewhat since the record figures at the end of 2016 and the strong results seen at the start of the year, but are still well above longer-term trends and reflect a solid performance in uncertain times and in defiance of the naysayers,” comments David Johnson, Director at currency specialists, Halo Financial.

Johnson goes on to say, “Rates of growth in the industry remain above average, which is a positive sign, and shows the resilience of the UK manufacturing industry.”

New business:
New business came mostly from the domestic market, with a weak Pound once again helping to boost exports. The industry continues to see plenty of new orders coming in, noting continued growth in overseas demand.

Production growth:
The increase in UK manufacturing production slowed for the first time in nine months, with consumer goods producers the most affected, demonstrating only small levels of output growth. This is in contrast to February 2017, when consumer goods noted a positive increase in new orders. The intermediate and investment goods sectors, who saw significant growth in February, continued to see improvement and again recorded a significant boost in the last month.

Still a positive outlook for the UK manufacturing industry:

The outlook for the industry remains positive, with rising business confidence at the highest level for almost a year. Attitudes remain positive and demonstrate an upturn in optimism since February, with over 50 percent of companies now predicting an increase in production over the coming year, and only six percent forecasting a slowdown.

A positive outlook has contributed to employment in the UK manufacturing sector, with headcounts rising for the eighth month in a row in both SMEs and larger businesses. Jobs growth has increased at the fastest pace for a year-and-a-half.

Price pressures still a concern:

Price pressures remain an issue for the sector, with costs elevated throughout March and output charge inflation on the up, edging closer to the record high recorded in January 2017. This was largely due to the increased costs of raw materials pushing up vending prices. Input costs grew at one of the fastest rates since the survey began, although this has weakened over the last six months. Manufacturers cited the weak Pound and ever-increasing commodity prices as the reasons for increasing costs, in addition to the knock-on effects of supply chain pressures, with vendor led times at the longest for nearly six years.

Atul Kariya, National Sector Head of Manufacturing and Engineering at MHA Macintyre Hudson, commented: “The real concerns for UK manufacturers in the current marketplace are the cost pressures – from uncertain currency markets, increasing commodity prices, and additional costs across the supply chain.”

“Lack of certainty about whether these costs can be passed on to customers means that manufacturers are having to look inwardly at their processes and business models to find efficiencies wherever possible.”

David Johnson observed, “I’m delighted to see continued confidence in the UK manufacturing sector. In the face of the ever-evolving European political and economic landscape, volatile exchange rates and continued uncertainty around the UK’s Brexit negotiations with the EU and its other key trading partners, such optimism is very encouraging indeed and yet Sterling is only just starting to reflect that.”

“As we have warned before, rising price pressures across industry could dampen the sector’s enthusiasm and performance, so this needs to be watched carefully and taken into consideration in both business and currency planning.”

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