Reduced political uncertainty boosts manufacturers

3 February 2020

The UK’s manufacturing sector has steadied after eight months of contraction, according to the latest PMI. 

The IHS Markit/CIPS UK Manufacturing Purchasing Managers’ Index (PMI) rose to 50 in January, indicating there was neither contraction nor expansion. It was up from 47.5 the previous month. 

Receding political instability following December’s General Election contributed to the stabilisation of the sector and aided mild recoveries in new order intakes, employment, and business confidence.

Output in the consumer and intermediate goods sectors rose, as manufacturers scaled up production in response to improved inflows of new business, while a downturn in the investment goods sector continued.

The steady period also contributed to unchanging levels of employment, ending a nine-month sequence of job losses.

Optimism within the sector improved to an eight-month high, with 47% of manufacturers forecasting that output would expand over the year ahead.

However, new export orders fell for a third consecutive month, with firms citing weak economic growth in key markets – especially Europe – as the main factor.

Rob Dobson, director at IHS Markit, said: “Improvements were mostly seen via rising consumer demand and renewed input buying by businesses, suggesting that the reduction in uncertainty following the election has encouraged households and businesses to step up spending.

“In contrast, an ongoing downturn at investment goods producers suggests that the economic certainty required to achieve a full revival in capital spending may still be some way off, likely reflecting lingering uncertainty about the Brexit roadmap in the coming year.”

Duncan Brock, group director at CIPS, said: “Whilst exports fell for the third month in a row, it was home-grown orders that provided the fuel for manufacturing to move out of contraction territory as businesses returned to a little more normality.

“However, though some firms unravelled existing stocks and purchased small levels of materials to see them through the next few months, there was no indication of a large-scale return to spending. The investment goods sector remained in decline as uncertainty still maintained a stranglehold on long-term decisions.

“Hopefully the momentum will now build in spite of potential obstacles and the sector pulls itself up by its bootstraps into growth next month as the UK negotiates its position with the EU.”

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