UK manufacturing expansion continues

1 August 2006
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02 August 2006 | Rebecca Ellinor

The UK manufacturing sector showed further growth in July, with purchasing managers reporting strong expansion in production as well as increases in exports and new business wins.

But manufacturers struggled to keep costs down, as inflationary pressures rose sharply amid reports of soaring factory gate and input prices.

The CIPS/RBS purchasing managers' index (PMI), a composite indicator of sector conditions in which an index above 50 means growth - posted 53.8 in July. This was slightly weaker than June's reading of 55.1, which was the strongest since July 2004.

The expansion of production and new orders encouraged manufacturers to increase employment for the second month running. The employment index posted a reading of 50.2.

The report found the growth of output and new orders reflected stronger market conditions and successful sales initiatives. Companies particularly reported improved demand from clients operating in the US, Asia and the euro zone. The new orders index came in at 55.6 and the output index at 55.1.

July data pointed to mounting inflationary pressure, as the rates of increase for factory gate prices and purchasing costs both accelerated. Output prices have now risen in each month throughout the past year and the output prices index reached a 19-month high in July, at 56.2.

Manufacturers' costs were driven higher by the current strength of oil and energy prices. The costs of metals, chemicals, paper and packaging also increased. Input prices hit an 18-month high with the index reaching 70.2.

In the euro zone, the RBS/NTC manufacturing PMI also reported sustained growth. The index posted a reading of 57.4 for July, which showed a slight easing on the rate of growth on June's near six-year high of 57.7.

Manufacturing also continued to grow in the US. ISM's manufacturing index showed a reading of 54.7 for July against a reading of 53.8 in June.

Coverage of previous PMI reports is available at www.supplymanagement.com/pmi



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