CIPS News


UK Manufacturing PMI rises to highest level since mid-2014

CIPS 3 October 2016

September saw manufacturing production expand at the quickest pace since May 2014

  • UK Manufacturing PMI at 55.4 in September
  • Growth of output, new orders and employment all strengthen
  • Weak exchange rate drives export orders and input prices higher

 

Conditions in the UK manufacturing sector continued to improve at the end of the third quarter. Rates of expansion in output and new orders accelerated further, rising at rates rarely achieved since the middle of 2014. The domestic market remained a prime driver of new business wins, while the weaker sterling exchange rate drove up new orders from abroad.

At 55.4 in September, up from 53.4 in August, the seasonally adjusted Markit/CIPS Purchasing Managers’ Index® (PMI®) rose to its highest level since June 2014. Furthermore, the rebound in the PMI level since its EU-referendum related low in July has been sufficient to make the third quarter average (52.3) the best during the year-to-date.September saw manufacturing production expand at the quickest pace since May 2014. Growth was led by the consumer goods sector, where output rose at the quickest pace in one-and-a-half years. There were also substantial and accelerated increases at intermediate (11-month high) and investment (eight-month high) goods producers.

Underpinning the latest scaling up of output was a marked increase in new business. New orders rose to the second-greatest extent since mid-2014. Companies linked the latest increase to higher sales to both domestic and overseas clients, supported by promotional activity and (for exports) the weaker sterling exchange rate.

Total new orders rose strongly at consumer and investment goods producers. A modest gain was also seen in the intermediate goods sector.

September saw the level of incoming new export orders increase at the fastest pace since January 2014. UK manufacturers reported improved demand from clients in Asia, Europe, the USA and certain emerging markets. The recent rebound in the manufacturing sector encouraged companies to take on additional staff during September. Employment rose for the second straight month, after declining throughout the earlier part of the year. Job creation was linked to increased capacity requirements, new order growth and the launch of new product lines.Purchasing activity also increased during September. Input buying volumes were raised to one of the greatest degrees over the past two years. This exerted pressure on vendors, however, resulting in the steepest lengthening in supplier lead times since May 2011.

Higher import costs, a by-product of the weak exchange rate, led to a further substantial increase in average purchase prices in September. Manufacturers passed on part of the rise to clients in the form of higher charges. Output price inflation remained well above the series average.

David Noble, Group Chief Executive Officer at the Chartered Institute of Procurement & Supply:

“This month, manufacturing made up lost ground since the EU referendum, with a robust rise in new orders and production expanding at a pace not seen for over two years.

It was largely domestic orders that fuelled the rise in overall activity, although the weaker pound also bolstered export orders which increased at the steepest rate for 32 months. Consumer goods sector output rose at the strongest pace since March 2015.

Purchasing activity also increased at one of the quickest rates for over two years, impacting on suppliers’ delivery capabilities. This led to the sharpest lengthening in delivery times since May 2011, as higher demand for inputs reduced stock levels at vendors. Competition for raw materials also increased, along with input prices, as shortages in metals, chemicals and food were reported.

Employment levels were moderately encouraging with the second monthly rise in a row in this post-referendum bounce. Firms sought to increase their competitive edge, with marketing activity and the launch of new product lines. It is difficult to say whether this solid rebound will be sustained, however, as there will potentially be more challenges and uncertainties ahead."

The October 2016 Report on Manufacturing will be published on:
Tuesday 1 November 2016 at 09:30 (UTC)

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