Manufacturing 'growth funk' requires government action, says economist

Will Green is news editor of Supply Management
1 June 2015

A “growth funk” in the UK manufacturing sector could act as a “minor drag” on the economy, it has been warned.

The Markit/CIPS UK Manufacturing Purchasing Managers’ Index ticked upwards to 52 in May, slightly up on April’s revised reading of 51.8, and against a no-change figure of 50.

The modest expansion resulted from a solid domestic market and consumer goods, offsetting lacklustre demand from overseas, while investment goods producers fared better than in April. However, a downturn in intermediate goods continued.

Rob Dobson, senior economist at Markit, said: “Manufacturing looks on course to act as a minor drag on the economy, as the sector is hit by a combination of the strong pound and weak business investment spending.”

May saw a further increase in incoming new business, with the rate of growth of new orders picking up slightly from April’s seven-month low. Firms attributed this to rising client confidence and recent new product launches.

Companies said the exchange rate and soft global market conditions were factors contributing to the decrease in new work from abroad.

Dobson said: “Where growth is being reported by manufacturers, this remains heavily dependent on the domestic market, and consumer demand in particular. The challenge therefore remains for the new government to take the necessary steps to revive manufacturing, boost investment spending and improve export competitiveness if any headway is to be made on achieving the long-promised rebalancing of the UK economy.

“Manufacturers' growth funk is also hurting job creation, with increases to payroll numbers easing to a near standstill in May.”

Average selling prices rose for the first time in five months during May, while factory gate prices were broadly unchanged in the intermediate goods sector. Firms continued to report lower costs for a range of raw materials, but this was partly offset by recent oil price rises.

David Noble, group CEO, CIPS, said: “Suppliers remained under-performing as delivery times lengthened and shortages of a few key raw materials added pressure to the supply chain. Any caution around future business opportunities also translated into lower inventory levels as business optimism was low key and employment levels remained static.”

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