Manufacturing growth slows from August's 19-year high

30 September 2013

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1 October 2013 | Will Green

UK manufacturing continued to expand during September, rounding off the strongest quarterly performance for the sector since the first quarter of 2011.

The seasonally-adjusted Markit/CIPS Purchasing Managers’ Index slowed to 56.7 in September – against a baseline of 50 above which indicates growth – compared to August’s two-and-a-half year peak of 57.1.

Manufacturing production expanded for the sixth consecutive month in September, with the rate of growth staying close to August’s 19-year high, while the growth rate in new orders lost only “minor impetus”.

The domestic market remained the prime source of new contract wins, and while export business rose, it was only moderate and to the weakest extent since May.

Staffing levels increased at the fastest pace since May 2011, part of efforts to raise production and clear backlogs.

Prices of inputs and outputs continued to rise in September and manufacturers reported higher prices for commodities, dairy products, energy, feedstock, oil, paper and plastic. Factory gate prices increased for the third month running and to the greatest extent since September 2011. This was due to higher input costs but there were also reports of prices being raised to protect or improve operating margins.

Rob Dobson, senior economist at Markit, said: “These numbers are encouraging in respect to the rebalancing of the economy, with goods production likely to provide a major stimulus to economic growth in the third quarter. We would expect to see manufacturing output expanding by at least 1 per cent in the three months to September and possibly by as much as 1.5 per cent.

“The main disappointment came in the form of a slower rise in export orders. With the exchange rate still around 20 per cent weaker than before the financial crisis, we would expect to be seeing far stronger export gains than companies are currently reporting, especially with the eurozone showing signs of finally pulling out of recession.”

David Noble, CIPS CEO, said: “Increased demand has seen suppliers come under greater pressure and lengthening lead times. This has in part been caused by long shipping delays, particularly in raw materials, signalling the sector could be hit with further input price rises. For the time being, however, firms on the most part have been able to pass these costs on and protect their margins.”

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