Manufacturing PMI at five-month high in June

CIPS 1 July 2016

June saw a modest improvement in the performance of the UK manufacturing sector. The seasonally adjusted Markit/CIPS Purchasing Managers’ Index® (PMI®) posted 52.1, up from a revised reading of 50.4 in May, its highest level since January.

CIPS/Markit UK Manufacturing PMI® UK Manufacturing

Key points:

- Growth of output and new orders gather pace
- Employment falls for sixth straight month
- Input costs and output prices both rise

June saw a modest improvement in the performance of the UK manufacturing sector. The seasonally adjusted Markit/CIPS Purchasing Managers’ Index® (PMI®) posted 52.1, up from a revised reading of 50.4 in May, its highest level since January.

It should be noted that the data collection window for this month’s survey was between the 13th and 27th June. Almost all of the responses included in the final index readings were received prior to the end of 23rd June (the day of the UK’s EU referendum).

June data signalled a faster rate of increase in UK manufacturing production, underpinned by a solid acceleration in inflows of new work. New orders rose at the quickest pace since last October,reflecting the ongoing strength of the domestic market and a marginal uptick in new export business.

Where an increase in new work from overseas was recorded, companies linked this to higher sales to the USA, mainland Europe (especially Germany,Italy, Spain and the Benelux nations), Russia and East Asia.

Sector data pointed to a broad-based improvement in operating conditions during June. Output and new orders increased across the consumer,intermediate and investment goods industries, with only the latter failing to also see gains in new export business.

The trend in manufacturing employment remained negative during June. Job losses were reported for the sixth straight month, with all three of the broad sub-sectors covered by the survey seeing declines.Lower staffing levels were linked to a combination of redundancies, natural wastage, efficiency gains and efforts to control costs.

June data signalled a modest increase in purchasing activity among UK manufacturers,halting a four-month sequence of decline. This exerted pressure on suppliers’ capacity, leading to a further lengthening of vendor lead times. Stocks of purchases and finished goods were both depleted.

Average input costs increased for the second successive month in June. Although the rate of inflation was only moderate, and well below its long-run trend pace, it was nonetheless the fastest since February 2014. Companies reported a wide range of raw materials as up in price, including food products, oil, polymers, resins and steel.

June also saw a mild increase in selling prices, as manufacturers passed on higher costs. Output charges rose at similar rates across the consumer, intermediate and investment goods sectors.

Rob Dobson, Senior Economist at survey compilers Markit
:“With 99% of survey responses received before the end of 23rd June, the latest PMI signalled that the manufacturing sector has started to move out of its early year sluggishness in the lead up to the UK’s EU referendum.

“The headline PMI rose to a five-month high in June on the back of improved rates of expansion in both production and new order volumes. There were also signs that the trend in new export business was starting to pick up and a rebound in demand for capital goods – a key bellwether of broader investment spending.

“Whether this growth recovery can be sustained will depend heavily on whether the current financial and political volatility spills over to the real economy. While the Bank of England remains poised to act if needed and the UK’s trading relationships are unchanged during the two-year negotiation period, there’s a clear risk that ongoing uncertainty will have at least some short term impact on manufacturing during the coming quarters. The big question is whether any negative impact from uncertainty can be partly offset by a boost to exports resulting from the fall in the pound.”

David Noble, Group Chief Executive Officer at the Chartered Institute of Procurement & Supply:“Employment levels continued their downward path for the sixth consecutive month, with companies eager to improve efficiency, and control costs. Uncertainty about the outcome of the referendum and recent indecision from clients placing new orders continued to take their toll on an already challenged industry.

“However, these largely pre-Brexit responses in the survey showed a slightly more positive picture compared to the previous few months. Purchasing activity increased slightly and stock levels also reduced, to match the modest upturn in output and new order growth. This improvement was largely fuelled once again by the domestic market with some improvement overseas, and a slightly increased level of orders from the USA and mainland Europe with some respondents highlighting orders from Germany in particular.

“The industry has built some momentum in recent months. Whether this is sustainable in a post-Brexit world as the UK returns to a period of uncertainty, is anyone’s guess.”

For economics comments, data and technical queries, please call:

Markit Press Office
Joanna Vickers, Corporate Communications 
Telephone +44 207 260 2234 

For industry comments, please call:

Trudy Salandiak 
Tel: +44 1780 761576 

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