'Gentle hush' falls over UK manufacturing

2 July 2018

UK manufacturing sector performance has failed to match the growth seen at the end of 2017 and has remained relatively subdued with quarterly figures the weakest in over a year, according to the latest PMI.

Growth in output slackened, largely offsetting a mild uptake in new orders and improved job creation.

The IHS Markit/CIPS UK Manufacturing Purchasing Managers' Index rose to 54.4 in June, just above May’s reading of 54.3, which was revised from the original 54.4, but almost four points below the 51-month high.

Over the whole of the second quarter of 2018 the average reading was 54.2, the weakest since the final quarter of 2016.

While output and new orders rose across the consumer, intermediate and investment goods sectors, the overall rate of expansion in manufacturing output slowed with new order inflows growing only slightly.

Inventory building and clearing backlogs of work was partly responsible for higher output at some companies.

And while the rate of increase in new business rose to a three-month high it was still among the weakest figures seen in the past 18 months.

The amount of new work reported by respondents grew steadily in both domestic and overseas markets.

Increased sales in Europe, China, South America and Australia were largely responsible for increases in new export business when this was reported.

Job creation improved solidly, with staffing levels rising at the quickest pace seen for the last three months.

And while the consumer, intermediate and investment goods sectors saw employment increase the overall rate of jobs growth remained below what was seen in most of 2017.

Inflation in input costs rose to a four-month high in June as companies reported a wide range of imports having seen price increases.

Some respondents believe the cost increases were being exacerbated by shortages of certain raw materials. Some of the rising costs were passed on to buyers.

More than 51% of the survey panel expected output to rise over the coming year due to market growth, investment spending, organic expansion, planned promotional activity and higher capacity. But concerns about input price increases, possible future trade tariffs, the exchange rate and bricks it uncertainty meant the degree of positivity fell to seven-month low.

CIPS group director Duncan Brook said: “A gentle hush descended over the sector in June as growth of new orders was amongst the lowest in 18 months and the almost imperceptible rise in manufacturing output was more about housekeeping and clearing up backlogs than tackling new business.

“The undercurrent of uncertainty was once again the main culprit as clients hesitated to place orders resulting in the overall index average over the second quarter becoming the weakest since the end of 2016.

“Material shortages and the highest rise in input price inflation since February also disrupted supply chains so managers tried to beat future price rises by buying up materials already in short supply and in case suppliers continued to fail in their obligations as delivery times worsened again this month.”

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