UK manufacturing growth slows at year-end

CIPS 2 January 2015

Manufacturing PMI at three-month low of 52.5 in December

UK manufacturing growth slows at year-end

Markit/CIPS UK Manufacturing PMI® report:

- Manufacturing PMI at three-month low of 52.5 in December

- Growth of production and new orders weaken

- Export performance remains stagnant

The UK manufacturing sector ended 2014 on a softer footing, as December saw rates of expansion in production and new orders ease to the second-slowest for over one-and-a-half years. Price pressures also remained subdued, as input costs fell at a faster pace and selling prices moved only slightly higher.  

The seasonally adjusted Markit/CIPS Purchasing Manager’s Index® (PMI®) edged lower to 52.5 in December, down from 53.3 in both October and November. The average PMI reading over the final quarter as a whole (53.0) was only slightly below that in the prior quarter (53.1), but nonetheless the weakest growth outcome in a year-and-a-half.

Despite slowing in December, the unbroken sequences of expansion in manufacturing production and new orders both extended to 22 months. The upturns also remained broad-based by sector, with concurrent growth in output and new business registered across the consumer, intermediate and investment goods industries.

Companies reported that product promotion, new customer wins and improved client confidence all contributed to the latest increase in total new orders. However, the domestic market remained the prime source of new contracts, as the trend in new export orders stayed lacklustre in comparison.

The level of new work received from overseas clients was unchanged over the month in December, following back-to-back declines in October and November. There were reports of improved demand from North America and the Middle East. The picture from the euro area was more mixed, however, with some UK manufacturers signalling an increase in new work received and others a decline. 

December data suggested that price pressures remained subdued at the end of the year. Average output charges rose only slightly over the month and have shown little movement over the final quarter as a whole. Average input prices decreased for the fourth month running and at the fastest pace in almost two-and-a-half years. There were reports of lower costs for chemicals, energy, metals, oil and plastics.

UK manufacturing employment rose for the twentieth month in a row during December, with the rate of jobs growth little-changed from November’s four-month high. Companies reported that the upturn in the sector and efforts to clear outstanding business had contributed to the latest expansion in workforce numbers. Subsequently, backlogs of work fell for the tenth straight month.   

David Noble, Group Chief Executive Officer at the Chartered Institute of Procurement & Supply: “The year ends on a customary, if softer note, as growth remains solid for the remainder of what’s been a good year for manufacturing.

“The domestic market continues to be the main driver this month, and though the North American and Middle East markets have picked up slightly, this activity was not enough to make a significant contribution.“The drop in backlogs of work, now in its tenth month, supported by rising employment rates showed a continued level of self-belief sustained from last month. Procurement and supply management professionals again commented on the reduction of commodity costs. This combination, with a slight increase in output prices has resulted in a reduction in the levels of squeezed margins experienced in recent years. The drop in oil prices has offered additional benefits as associated commodities showed a similar reduction in price.

“Though vendor performance deteriorated a little and there were some minor shortages, the impact of this has not been significant enough to rattle confidence in the sector. “In summary the picture is one of constancy and a good basis for operation for the sector in 2015 if the levels of risk and opportunity remain the same and the global economic landscape offers similar prospects.”

The January 2015 Report on Manufacturing will be published on:Monday 2nd February 2015 at 09:30am.

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