Manufacturing sector sees 'mild improvement'

posted by Alex Daniel
1 October 2018

The end of the third quarter saw “mild improvement” in the manufacturing sector, despite transport delays and material shortages causing difficulty for suppliers.

The IHS Markit/CIPS UK Manufacturing Purchasing Managers’ Index rose to 53.8 in September, up from 53 in August. It has remained above the neutral 50 mark for more than two years.

Respondents cited inflows of new business, rebuilding inventories and attempts to clear backlogs of work as reasons for a four-month high in manufacturing production growth, while the trend in new export business saw a “modest recovery” after August’s contraction.

Foreign demand posted a mild recovery following the solid contraction registered in August, with companies linking growth to higher sales to the USA, Europe, Canada, Scandinavia and Russia.

Jobs growth at SMEs saw manufacturing employment increase over the month, offsetting cuts a large-scale producers, reflecting efforts to meet the dual needs of work on new and existing contracts.

Purchasing costs rose at the quickest rate since June, as prices increased for electronic components, energy, food products, metals, paper, plastics, resins and timber. Respondents said exchange rate, supply shortages and global inflationary pressures also led to cost increases.

Suppliers posted an increase in delivery times, which have risen for the 29th successive month, caused by transport delays and a shortage of raw materials.

Businesses were more optimistic than this time last month, with 53% of companies expecting production to increase over the next year. The optimistic outlook was attributed to new capacity, organic growth, improved sales, investment in new equipment and planned new product launches. But some manufacturers also noted that Brexit and exchange rate movements were making forecasts less certain.

Rob Dobson, director at IHS Markit, which compiles the survey, said despite the “mild improvement” and optimism, conditions in the industry remained “relatively lacklustre”.

“Based on its historical relationship with official ONS [Office of National Statistics] data, the latest survey is consistent with output expanding at only a moderate pace. Although total exports rose, exports of goods used as inputs by other manufacturers fell for the third straight month, ending the worst quarter for over three years for such exporters, suggesting that foreign companies may be sourcing less from UK-based component suppliers.”

Duncan Brock, group director at CIPS, said the sector was “feeling more positive” than in the last three months.

Despite this, fluctuations in stock highlighted “weaknesses in the sector,” he said, and that doubt remains “deep seated until a robust Brexit deal is signed on the dotted line”.

“Some companies were improving their stock levels to ensure supply was assured during the Brexit countdown and to beat future price increases, others were reducing stock levels in anticipation of a decrease in opportunity in spring 2019,” he said.

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