CIPS News


UK manufacturing growth slows at end of second quarter

CIPS 3 July 2017

The end of the second quarter saw manufacturers report further expansions of both production and new order volumes. However, rates of increase decelerated, as growth of new business slowed in both the domestic and export markets. Price pressures continued to ease, with rates of inflation in input costs and output charges down further from highs reached at the start of the year.

Key findings:

  • UK Manufacturing PMI at three-month low of 54.3 in June
  • Growth rates of output and new orders slow
  • Price inflationary pressures ease

 

IHS Markit/CIPS UK Manufacturing PMI®

The end of the second quarter saw manufacturers report further expansions of both production and new order volumes. However, rates of increase decelerated, as growth of new business slowed in both the domestic and export markets. Price pressures continued to ease, with rates of inflation in input costs and output charges down further from highs reached at the start of the year.

At 54.3 in June, down from 56.3 in May, the seasonally adjusted IHS Markit/CIPS Purchasing Managers’ Index® (PMI® ) posted its lowest reading in three months. However, the average PMI level over the second quarter as a whole (55.9) was the best registered for three years.

Manufacturing production increased for the eleventh successive month in June. Companies attributed the latest expansion to higher intakes of new business. Some firms also noted that slower growth of new orders meant output was raised to a lesser extent than in recent months.

The latest survey pointed to a broad-based slowdown, with output and new orders rising at milder rates across the consumer, intermediate and investment goods sectors.

The improvement in new work volumes was the weakest in the current 11-month sequence of gains. Alongside reports of a deceleration in the rate of expansion of new orders from the domestic market, manufacturers also noted that new export business rose at a weaker pace.

Where an increase in foreign demand was registered, this reflected improved inflows from North America, Western Europe, East Asia and the Middle East. There was also mention of the weak sterling exchange rate continuing to boost export competitiveness. Growth of new export work nonetheless eased to a five-month low.

Manufacturing employment rose for the eleventh month running in June. Jobs growth was registered at small, medium and large-sized enterprises, although rates of expansion slowed in all three categories. This was partly due to the weaker increase in new business, which lessened the pressure on operating capacity. Backlogs of work also fell for the first time in three months.

Rates of increase in input costs and output charges decelerated further from the highs seen at the start of the year. Supply-chain pressures remained evident, however. Average vendor performance deteriorated to the same extent as in May (which saw the sharpest lengthening of lead times in six years).

Manufacturers maintained an optimistic outlook in June. Almost 48% forecast output would be higher in a year’s time, compared to only 7% anticipating a decline. Confidence was linked to planned investment spending, new product launches and expected growth of new business. However, the overall degree of positive sentiment slipped to a seven-month low, amid reports of uncertainty regarding the uncertain political outlook (including ongoing Brexit negotiations).

Comments

Rob Dobson, Senior Economist at IHS Markit, which compiles the survey:

“The UK manufacturing sector largely weathered the uncertainty of a general election and start of formal Brexit negotiations to eke out further output growth at the end of the second quarter. However, the rate of expansion eased again in June, with growth weakening across the consumer, intermediate and investment goods industries.

“Although the sector should still improve on its lacklustre opening quarter performance, this will be to a lesser extent than hoped for after solid growth in April and May. The main factor driving the broad slowdown in June was a steep easing in the rate of increase in new order intakes.

“New business rose at the weakest pace for nearly a year and growth was down sharply from April’s near three-year high. This slowdown was largely centred on the domestic market, where increased business uncertainty appears to have led to some delays in placing new contracts.

“Export orders remained disappointingly lacklustre despite the ongoing competitiveness boost of the weak sterling exchange rate.

“While the survey data add to signs that the economy is likely to have shown stronger growth in the second quarter, further doubts are raised as to whether this performance can be sustained into the second half of the year.”

Duncan Brock, Director of Customer Relationships at the Chartered Institute of Procurement & Supply:

“Manufacturing activity showed signs of slowing this month, as fears that the sector would feel the impact of both the election and the start of Brexit talks materialised.

“While the sector remained in growth, a softening of new orders suggested some hesitancy from the UK to commit to new projects, which will be a worry as the domestic market has been the main driver of growth in the past two months. Apart from some orders from the US and Western Europe, exports fared little better as a continuing weak, but stable pound began to lose some of its allure.

“Though the burden of higher cost pressures eased, purchasing activity was held back by the halting performance of supply chains as a shortage of some essential raw materials was reported. Combined with disappointing vendor performance, there will be some frustration over the progress of work in hand and for being fit for the future post-Brexit world.

“But, for now, optimism remains relatively high, job creation solid across corporates and SMEs and additional efforts are being made to improve efficiencies across the sector. Yet uncertainty remains the enemy, and the next few months will be a waiting game for manufacturers hoping for more stable conditions.”

For industry comments, please call:

CIPS

Trudy Salandiak

Tel: +44 1780 761576 / +44 7554 400731

Email: trudy.salandiak@cips.org

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