UK Manufacturing PMI climbs to ten-month high in August

CIPS 1 September 2016

The month-on-month increase in the level of the headline PMI (5.0 points) was the joint-greatest in the near 25-year survey history.

Markit/CIPS UK manufacturing PMI

- UK Manufacturing PMI posts 53.3 in August

- Trends in production and new orders post solid rebounds

- Weaker sterling currency drives up export orders and input costs

August saw solid rebounds in the trends in UK manufacturing output and incoming new orders. Companies reported solid inflows of new work from both domestic and export sources, the latter aided by the sterling exchange rate. Employment rose for the first time in the year-to-date. At 53.3 in August, the seasonally adjusted Markit/CIPS Purchasing Managers’ Index® (PMI® ) recovered sharply from the 41-month low of 48.3 posted in July following the EU referendum.

The month-on-month increase in the level of the headline PMI (5.0 points) was the joint-greatest in the near 25-year survey history. The gains in the indices tracking output and new orders were similarly among the steepest on record. Manufacturing production increased at the fastest pace in seven months during August, an improvement on the contraction registered in the prior month. All three of the market groups covered by the survey returned to growth, with the strongest expansion registered in the consumer goods sector.

Underpinning the scaling up of production volumes was a marked increase in the level of new work received. New business rose at one of the quickest rates in the year-so-far, as companies benefited from improved inflows of new work from both domestic and overseas clients. There were also reports of stronger demand, product launches and clients committing to new and previously postponed contracts.

Improved sales volumes to markets such as the USA, Europe, China, South-East Asia, the MiddleEast and Norway led to a further increase in new export business during August. Moreover, the rate of growth accelerated to a 26-month high. The depreciation of the sterling currency was by far the main factor manufacturers cited as supporting the upswing in new export work. The negative consequences of currency movements were felt in the form of rising input costs during August. Input price inflation surged to a five-year record, with almost 44% of firms reporting an increase in purchasing costs. However, it should also be noted that the pace of input price inflation has yet to scale the peaks reached during previous bouts of high cost inflation (such as those registered during 1994- 1995, 2004, 2008 and 2010-2011). Output prices also rose at the fastest pace for five years in August. Moreover, the month-on-month increase in the index tracking charges was among the steepest in the series history. Employment rose for the first time during the yearto-date, albeit only moderately. Job creation was seen at SMEs, whereas cuts were made at largescale producers. Higher staffing levels aided efforts to reduce backlogs of work.

David Noble, Group Chief Executive Officer at the Chartered Institute of Procurement & Supply: “The Brexit brakes are off, as the sector surged ahead with the PMI hitting a 10-month high reflecting rapid expansions in both activity and new orders.

“Fuelled by a combination of export and domestic orders, the increase in the level of the headline PMI equalled its best during the survey’s quarter of a century history.

“With exchange rates supporting more orders overseas, the counter effect of a lower pound meant that purchasing costs were higher, which was reported by 44% of procurement managers. Staffing levels rose at a modest pace, after falling throughout the year-to-date. SMEs fared better with more hires, whereas larger companies reported shedding some jobs.

“An increase in stock building could signal more positive hope for the coming months, but it remains to be seen whether this expansion of activity is merely filling the post-Brexit void or whether this strong performance will continue.”

For industry comments, please call:

Trudy Salandiak
Tel: +44 1780 761576

The September 2016 Report on Manufacturing will be published on: Monday October 3rd 2016 at 08:30 (UTC)

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