Manufacturing growth comes with higher material costs

2 April 2012
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2 April 2012 | Angeline Albert

Continued growth in the UK manufacturing sector at the start of 2012 has been coupled with higher purchasing costs for raw materials.

The Markit/CIPS UK Manufacturing Purchasing Managers’ Index (PMI) for March rose to a ten-month high of 52.1 in March, up from a revised figure of 51.5 in February. A figure above 50 indicates expansion in the sector.

But cost pressures for manufacturing companies are intensifying, due to high oil and metal prices which has pushed up the cost of transport and electronic components. Businesses also reported higher prices for plastics. Average purchase prices rose at the quickest pace since last August.

In turn manufacturers passed these costs onto consumers, with the index for factory gate prices rising at its fastest pace in six months. But some firms said tough market conditions and strong competition had restricted their ability to raise output prices.

It is the fourth successive month of expansion for the manufacturing PMI, with its average reading in the first quarter of 2012 of 51.8, the highest since the second quarter of 2011. Growth in manufacturing output has been the result of efforts to clear backlogs of work as well as new orders. But new business is not growing as quickly as levels of output, with stocks of finished goods building up in warehouses.

New export orders also increased for the third time in the past four months, reflecting new business wins in Africa, south east Asia and Japan.

David Noble, CEO at CIPS, said: “However, manufacturers are still under a great deal of pressure to manage costs and are burning through backlogs of orders to maintain production volumes. Headcounts are being kept to a minimum in part to offset the chronic rising cost of raw materials. The even balance of expansion in new orders from home and markets outside Europe is also encouraging, helping to neutralise the effects of a weak Eurozone.”

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