UK manufacturing sees modest growth while input prices drop

1 February 2016

The UK manufacturing sector has seen a modest improvement since the start of 2016, according to a survey of buyers.

The Markit/CIPS UK Manufacturing Purchasing Managers’ Index climbed to a three-month high of 52.9 in January, up on 52.1 in December and against a no-change reading 50.

Manufacturing production increased again during January, thanks to orders from the domestic market, and the rate of expansion was the greatest for 19 months.

Meanwhile, new export orders fell back into decline, which was blamed by companies on stronger competition and tough market conditions.

Some firms said that despite the recent weakening of sterling against the euro the sterling-euro exchange rate still adversely affected eurozone trade.

The prime drivers of the growth in production were the consumer and investment goods sectors. Large manufacturers saw greater growth than SMEs.

However, the report noted the increase in production was achieved partially through reducing backlogs of work. Uncompleted orders in-hand fell at the fastest pace for four months, which translated into spare capacity at some firms.

This partly accounted for manufacturing employment falling for the fourth time in the past six months, though companies also linked job cuts to redundancies, retirements, restructuring initiatives, efficiency improvements and efforts to control costs.

Manufacturers’ purchasing costs continued to fall during January thanks to ongoing weaknesses in global commodity prices. Average input prices fell at the fastest rate for four months and the overall fall was one of the largest in the survey’s 24-year history. This led to reports of lower prices for chemicals, metals, oil and plastics.

David Noble, group CEO, CIPS, said: “The domestic market continued to buoy up manufacturing growth as the year starts in a positive, if slightly reserved fashion.

“Purchasers were reducing stock levels and moving towards leaner purchasing practices to increase cashflow.”

He added: “The increase in demand for inputs also exerted greater pressure on supply chains, leading to longer vendor delivery times and rising reports of raw material shortages.”

Rob Dobson, senior economist at Markit, said: “Strong competition on the sales side combined with the ongoing weakness of global commodity prices meant that manufacturers saw selling prices and input costs fall further in January.”

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