Behind manufacturing growth are 'darker developments'

Will Green is news editor of Supply Management
1 June 2018

UK manufacturing saw a rise in growth in May but behind the trend “darker developments are taking place, according to the latest PMI.

The IHS Markit/CIPS UK Manufacturing Purchasing Managers' Index rose slightly to 54.4 in May, compared to April's 17-month low of 53.9 and against the no-change reading of 50.

However, growth was mainly accounted for by a reduction in backlogs of work and a steep build-up of finished goods inventories.

Growth in new business was solid but the pace of expansion eased to an 11-month low, reflecting softer domestic demand. Firms reported a slight strengthening in new work from mainland Europe, North America, China, India, South America and Africa.

Average input prices accelerated for the first time since January, with reports of shortages developing for a number of inputs, while average vendor lead times deteriorated to the greatest extent this year.

May saw output charges rise for the 25th consecutive month across consumer, intermediate and investment goods, though inflation was the weakest since last August.

Duncan Brock, group director at CIPS, said: “To the casual eye, the manufacturing sector appears to be in a robust mood with a further rise in activity and the highest output growth for five months. 

“But pore over the detail, there are some darker developments taking place, impacting on new order and jobs growth and creating the lowest optimism for six months.

“Manufacturers reported the weakest increase in new orders since June 2017, which translated into a dampening of the desire to hire especially in the consumer goods sector which experienced some job losses. 

“Also, the performance of supply chains offered little reassurance as supplier delivery times got longer, raw material shortages became more acute and manufacturers struggled to complete production promises as a result of a squeeze on supplier capacity.

Rob Dobson, director at IHS Markit, said: “A slowdown in new order inflows meant the expansion in production was achieved only by firms working through their backlogs of work. Weaker than expected sales meanwhile led to the largest rise in unsold stock in the survey’s 26-year history.

“This suggests that manufacturers have yet to fully adjust their production to the weakening trend in new business growth and there will need to be a rapid improvement in demand if output volumes are to be sustained in the coming months.

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