IHS Markit/CIPS UK Manufacturing PMI®
- UK Manufacturing PMI at 56.3 in October (September: 56.0)
- Output and new order growth remain robust
- Input cost and output price inflation accelerate
The UK manufacturing sector started the final quarter of the year on a solid footing. Production and new order volumes continued to rise at robust rates, as companies benefited from strong domestic market conditions and rising inflows of new export business. Price pressures remained elevated, however, with rates of inflation in input costs and output charges both accelerating and staying well above historical series averages.
The seasonally adjusted IHS Markit/CIPS Purchasing Managers’ Index® (PMI®) registered 56.3 in October, up from 56.0 in September (revised from the original reading of 55.9). The headline PMI has now signalled expansion for 15 consecutive months. Responses from the latest survey were collected between 12-26 October.
UK manufacturing production rose at an identically solid pace to that registered in the prior survey month during October. The expansion was broad based by sub-sector, with consumer, intermediate and investment goods producers all registering output growth.
The latter two sectors both saw rising production volumes backed up by strong and accelerated intakes of new business. Conditions seemed less firm in the consumer goods category, however, as growth of new orders eased to a seven-month low and business optimism to its weakest level in the year-to-date.
Total new order intakes rose at a substantial rate during October, recovering part of the growth momentum ceded in the prior survey month. The domestic market was the prime source of new contract wins, although new export business also continued to rise (albeit at the weakest pace in four months). Companies mentioned improved intakes of new work from clients in the USA, mainland Europe, South America and Australia, in some cases aided by the sterling exchange rate.
The solid performance of the manufacturing sector was again reflected in the labour market. Jobcreation was registered for the fifteenth successive month, with the pace of growth improving to a 40-month high.
Staffing levels were raised to cope with increased production requirements, company expansionplans and to meet expected future demand growth. Over 50% of manufacturers forecast output will be higher in one year’s time, compared to only 8% who anticipate a decline.
Capacity pressures were still present in supply chains during October, leading to a further marked lengthening of vendor lead times. Robust demand for raw materials combined with sellers’ markets developing for certain inputs led to higher purchase prices. Input costs increased to the greatest extent in seven months, contributing to the steepest rise in selling prices since April.
Rob Dobson, Director at IHS Markit, which compiles the survey: “UK manufacturing made an impressive start to the final quarter of 2017 as increased inflows of new work encouraged firms to ramp up production once again. The sector looks to be achieving a quarterly rate of expansion close to 1%, therefore sustaining the solid pace of growth signalled by the official ONS estimate for the third quarter. The domestic market remained strong, whereas new export orders increased at a slightly slower pace, the latter showing signs of being hit by the recent strengthening of sterling.
“Price pressures continued to build, however. Input costs rose at the fastest pace in seven months,leading to the steepest rate of selling price inflation since April. Higher demand for raw materials,combined with increased supply-chain constraints, mean annual input price inflation is moving back into double-digit rates, which may feed through to higher pressure on consumer prices in coming months.
“The continued robust health of manufacturing and rising price pressures will help cement expectations of the Bank of England hiking interest rates for the first time in a decade as Thursday’s announcement approaches.”
Duncan Brock, Director of Customer Relationships at the Chartered Institute of Procurement & Supply:“It’s good to see the manufacturing sector holding strong and steady in October, buoyed up by an increase in new orders from the domestic market and improving on last month’s results. While trade from export markets slowed slightly, orders from overseas continued to rise for the 18th month supported by a robust global economy. The pound’s fluctuating performance may have had some bearing on the softening in export orders, but there were continuing good levels of demand from Europe and the USA so no cause for concern.
“However, one note of caution surrounds the endless onslaught of inflationary pressures. Input prices increased to their highest level for 7 months as commodity prices rose and intense competition for raw materials also had a cost impact. The rush to buy from depleting supplier stocks and significant delays in delivery times reported by almost a fifth of respondents showed that supply chains havestarted to creak under the strain.
“As previously delayed projects were given the green light, there was a rise in positivity in the sector paired with a strong optimistic upsurge in employment levels not seen for over three years.
“But this laid-back start to the first quarter should not lull anyone into a false sense of security as the Brexit negotiations are still causing some jitters amongst clients. But the sign of the times point to measured and muted growth as we approach the year’s end."
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Trudy SalandiakTel: +44 1780 761576