CIPS News


UK manufacturing sector growth remains solid at end of 2017

CIPS 2 January 2018

Manufacturing output and new orders expanded in December.

Manufacturing output and new orders have both
expanded throughout the past 17 months.Manufacturing output and new orders have bothexpanded throughout the past 17 months.

 

UK Manufacturing PMI at 56.3 (November: 58.2)
 Output, new orders and employment all rise at
solid rates
 Input cost and output price inflation ease

IHS Markit/CIPS UK Manufacturing PMI®

- UK Manufacturing PMI at 56.3 (November: 58.2)

- Output, new orders and employment all rise at solid rates

- Input cost and output price inflation ease

The UK manufacturing sector ended 2017 on a positive note. Although December saw rates of expansion in output, new orders and employment slow from November’s highs, growth in all three remained solid and well above long-run trends.

The seasonally adjusted IHS Markit/CIPS Purchasing Managers’ Index® (PMI®) posted 56.3 in December, down from November’s 51-month high of 58.2. The headline PMI has now remained above the 50.0 no-change mark for 17 consecutive months. The average reading over the final quarter of 2017 (57.0) was the best since the second quarter of 2014.

Manufacturing output and new orders have both expanded throughout the past 17 months.Companies reported that production was scaled up in response to solid inflows of new work and the launch of new product lines.

Output growth accelerated in the intermediate and investment goods sectors, but slowed at producers of consumer goods. The strongest pace of expansion overall was registered in the intermediate goods category.

Part of the increase in new business at UK manufacturers reflected a solid increase in new export sales. Demand improved from clients in Europe, the USA, China and the Middle East.

Rising intakes of new work tested capacity, leading to a modest increase in outstanding business. These in turn encouraged companies to raise employment, with job creation registered for the seventeenth month in a row.

Investment goods producers reported a strong increase in staff levels. The expansion was solid in the intermediate category, but only slight in the consumer goods sector.

The rate of increase in input costs eased to a four month low in December, but remained marked overall. Companies linker higher costs to rising raw material prices, input shortages, suppliers raising their prices and the exchange rate. The cost of chemicals, electrical goods, electronics, metals, paper, plastics, timber and utilities were all reported as higher.

Part of the increase in purchase prices was passed on in the form of higher output charges in December. Selling prices rose for the twentieth successive month. Companies also linked the latest increase in charges to stronger demand.

UK manufacturers maintained a positive outlook in December, with close to 54% of companies reporting that they expect production to rise over the coming year. Positive sentiment reflected investment in capacity and machinery, expected growth in domestic demand and export sales, new product launches and efforts to increase market share.

Sources: IHS Markit, UK Office for National Statistics

Comments

Rob Dobson, Director at IHS Markit, which compiles the survey:

“UK manufacturing ended 2017 on a positive footing. Although growth of output and new orders moderated during December, rates of expansion remained comfortably above long-term trend rates. The sector has therefore broadly maintained its solid boost to broader economic expansion in the fourth quarter. The outlook is also reasonably bright, with over 50% of companies expecting production to be higher one year from now.

“The main growth engines were the intermediate and investment goods sectors during December, suggesting resilient business-to-business demand and capital spending trends, albeit in part due to rising exports. Growth in the consumer goods sector remained weak in comparison and was the only sub-industry to see output expand at a slower pace than November.

“Rates of inflation in input costs and selling prices both moderated in December. Although still running at elevated levels, this at least provides signs that the recent surge in price inflation is starting to abate. This trend should continue at the start of 2018, as supply-chain pressures hopefully ease further.”

Duncan Brock, Director of Customer Relationships at the Chartered Institute of Procurement & Supply:

“Purchasing activity and new orders maintained a healthy momentum this month, as domestic orders kept pace with rising export requests from the US, Europe and the Middle East.

“Supply chains paid the price of this success across all the sectors however, as suppliers were showing signs of strain under new and existing demand.

“Challenges over costs also remained, as input prices rose for the twentieth month in a row, partly as a result of shortages of some key materials and intense competition. But the sector was confident enough to offset these higher costs by raising its own prices as clients were demanding and business optimism was high.

“This self-assurance extended to continued jobs growth across all the sectors which will provide some relief to jobseekers in households still slightly hesitant about the future.

“The manufacturing sector’s performance is encouraging, showcasing a resilient response to the ebbs and flow of the year’s uncertainty with a sparkling end to a strong period of growth.”

For industry comments, please call: CIPS; Trudy Salandiak; Tel: +44 1780 761576; Email: trudy.salandiak@cips.org

Page Loading
Page Loading