UK manufacturing sector growth 'muted'

4 January 2016

The UK manufacturing sector’s growth continued to slow at the end of the year, with performance across 2015 as a whole lower than the previous year, according to a survey of buyers.

The Markit/CIPS Manufacturing Purchasing Managers’ Index fell to 51.9 in December, down from 52.5 in November, showing that output and new order growth was continuing to slow from its peak in October. A reading of 50 signals no change.

Higher intakes of new business from both domestic and export clients meant that manufacturing production rose for the 33rd month running in December, with the consumer goods sector remaining the prime driver. But the rate of expansion eased over the month. Similar decelerations were also seen at intermediate and investment goods producers.

New export orders rose for the fourth consecutive month in December, although the rate of increase eased to its weakest since September. Growth of new export business was driven by improved demand from clients in continental Europe, the US, China, Scandinavia, Turkey, Singapore and the UAE.

Staffing levels rose slightly in December, according to the survey, boosted by new orders, and employment rose for the 30th time in the past 32 months, following no change in November.

Recent falls in global commodity prices, especially oil, and some exchange rate factors resulted in lower costs.

David Noble, group CEO, CIPS, said it was a muted end to the year with the weakest level of expansion in three months.

“Any rise in production was attributed to new orders from domestic but also export markets, as the sector saw an increase in demand from the States, Singapore and China, as well as Europe,” he said. “Stock levels were reduced for the 10th successive month as firms made efforts to improve on work backlogs.

“Staffing levels also improved, from last month’s stagnant position, and this month more jobs were created across all sub-sectors and at both SMEs and larger companies. Falling input prices improved business margins as many firms seemed reluctant to pass on savings to clients to make up any perceived losses suffered earlier in the year.”

Rob Dobson, senior economist at Markit, said the figures were disappointing and meant the manufacturing sector was likely to make only a marginal positive contribution to broader economic growth in the final quarter of the year.

“With the latest revisions to official data also suggesting that GDP growth earlier in the year was softer than previously thought, the emphasis has really shifted to other sectors of the economy if the rate of expansion for the year as a whole is to come in close to the OBR forecast as outlined in the Autumn Statement.”

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