UK manufacturing growth slows as intermediate goods sector falls back into contraction

CIPS 1 May 2015

April saw a marked slowdown in the rate of expansion of the UK manufacturing sector.

Markit/CIPS UK Manufacturing PMI®

Key points:

  • UK Manufacturing PMI at 51.9 in April
  • Consumer goods sector remains stand out performer
  • Price pressures remain on the downside

April saw a marked slowdown in the rate of expansion of the UK manufacturing sector. Output rose at the weakest pace since November last year, while the base of the upturn narrowed and became further skewed towards the consumer goods sector. The seasonally adjusted Markit/CIPS Purchasing Manager’s Index® (PMI®) posted 51.9 in April, a seven-month low and below the revised March reading of 54.0 (originally 54.4). The PMI has nonetheless remained above the neutral 50.0 mark,signalling expansion, for 25 consecutive months. The slowdown in the rate of increase of output occurred in tandem with weaker growth of incoming new business, in turn led by a decrease in the volume of new work received from abroad.

Companies reported that the domestic market continued to exhibit a degree of strength, leading to growth of total new orders. However, the sterlingeuro exchange rate was also hitting competitiveness in our largest trading partner (the eurozone). Growth of output and new orders was largely centred on the consumer goods sector during April, with rates of expansion in this market group remaining substantial. In contrast, the intermediate goods sector saw output and new orders fall back into contraction, while investment goods firms posted a decline in new work and slower production growth.

Manufacturing employment increased for the twenty-fourth successive month in April, with modest job creation signalled in both the consumer and investment goods sectors. Increased workloads were the primary factor encouraging firms to take on additional staff.

Price pressures remained on the downside in April, with both input costs and output charges falling during the latest survey month. Meanwhile, shortages of certain raw materials led to longer delivery times from suppliers.

Average input prices declined for the eighth successive month during April. Where a reduction was reported, this was linked to the euro-sterling exchange rate and higher costs for commodities, oil by-products and some food raw materials.

Conversely, there also were some manufacturers reporting an increase in prices paid for dollardenominated inputs, mainly due to the sterling-US dollar exchange rate. April saw output prices decrease for the fourth straight month, with the rate of deflation the steepest since September 2009.

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

“A sudden slowdown in activity growth in manufacturing may surprise some economic commentators hoping for a more linear recovery at higher rates of expansion, but the index remained in positive territory this month.

“The domestic market showed solid leadership by providing the source of many of the new orders albeit at a more subdued level, with export orders still dragging their feet. The consumer goods sector achieved faster growth of activity than the other sectors, with the investment and intermediate goods sectors relative laggards.

“Businesses were keen to keep stock and inventory levels lower and are taking advantage of lower commodity costs to re-invest in other areas of the business such as employment which showed another strong rise.

“Shortages in a number of raw materials added pressure to supply chains besieged by recent rises in new orders, backlogs and ongoing activity. Delivery times from suppliers increased which may add pressure in the coming months at a time when the sector still hasn’t made as much headway as the other sectors to reach pre-recession levels of  output.”

The May 2015 Report on Manufacturing will be published on:Monday 1 st June 2015 at 09:30

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