Manufacturing expansion remains subdued despite strong performing consumer goods sector

CIPS 1 September 2015

UK Manufacturing PMI at 51.5 in August 

Markit/CIPS UK Manufacturing PMI® 

Key points:

  • UK Manufacturing PMI at 51.5 in August 
  • Consumer goods sector remains strongest performer 
  • Input prices fall at steep pace 

The performance of the UK manufacturing remained sluggish in August, as the continued strength of the consumer goods sector was again offset by lacklustre output growth at intermediate goods producers and the ongoing downturn in the capital goods industry.

The headline seasonally adjusted Markit/CIPS Purchasing Manager’s Index® (PMI®) dipped slightly to 51.5 in August, from 51.9 in July and well below the average for the current near two-and-a-half year sequence of expansion (54.2).

August saw a modest increase in manufacturing production, as companies scaled up output in response to rising levels of new business. Rates of expansion accelerated to five-month highs, but remained below averages for the current upturn.

The domestic market remained the main pillar of new order growth, as the level of new export business decreased for the fifth straight month. Companies linked reduced overseas demand to the sterling exchange rate, weak sales performance to the eurozone and the slowdown in China.

On the costs front, there was a substantial drop in purchase prices during August. Average costs declined at one of the steepest rates during the past 16 years, with marked reductions reported across the consumer, intermediate and investment goods sectors. This reflected a combination of lower oil prices, the sterling exchange rate and reductions in the costs of a wide range of raw materials.

Although average selling prices continued to rise in August, the rate of inflation was near-stagnant and below July’s 11-month high. The vast majority of companies (over 90%) reported no change in their average output charges during the latest survey. 

The trend in employment turned mildly negative during August, with a negligible reduction in staff headcounts reported following a 25-month sequence of job creation. Cuts were mainly centred on large-sized manufacturers, as SMEs continued to add (on average) to their payroll numbers. Average vendor lead times lengthened for the twenty-seventh successive month in August, albeit to the least marked extent during that sequence. Where a deterioration in vendor performance was reported, this was attributed to capacity issues at suppliers and ongoing disruptions at the Channel crossing.

Manufacturers reported a preference for reduced inventory holdings in August, as stocks of purchases and finished goods were both depleted. The former was the result of lower levels of purchasing activity.

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

“The sector was on a go slow trajectory this month, showing a disappointingly slow pace of growth, and barely moving from last month’s figure, raising fears this could be an entrenched situation developing in the next few months. 

“Though there was still a modicum of production activity as output growth rose to a five-month high in response to new orders and in a marketplace mostly reliant on the domestic market as exports fell for the fifth month. Some respondents reported losing work to competitors in a lacklustre environment.

“The employment picture also lacked colour with a slight fall in employment. Corporates reduced staff numbers marginally, which was at odds with SMEs who continued to raise staffing levels in anticipation of a continued healthy growth in business.

“The biggest news is the drop in the input price index which signalled one of the sharpest rates of decline for1 6 years which was attributed to the continued drop in oil prices and for an increased number of raw materials. 

“Lastly, with turmoil in the Chinese markets and disruptions to supply chains as a result of chemical explosions in the region, the resonating effects globally may ripple through the sector in the coming months, even though China has little direct impact on the UK marketplace.” 


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