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Regular Industry Development Updates, Opinions and Talking Points relating to Manufacturing, the Supply Chain and Logistics.

As you were for UK manufacturing sector, but new business growth at three month high

02-Jul-2018
Dorrien Peters (pictured)
Partner and Head of Manufacturing at law firm, Irwin Mitchell
As you were for UK manufacturing sector, but new business growth at three month high
The June IHS Markit UK Manufacturing Purchasing Managers’ Index (PMI) is broadly unchanged from last month at 54.4, just 0.1 up on the downwardly-revised 54.3 in May. The rate of increase in new business reached a three-month high and there are other signs of improvement, although from a low base.

Glimmers of hope for manufacturing sector
It is very much ‘as you were’ for the June 2018 IHS Markit UK Manufacturing Purchasing Managers’ Index (PMI). The index, published today (Monday 2 July 2018) was up 0.1 on a downwardly-revised 54.3 in May, reaching 54.4 and providing glimmers of hope for the manufacturing sector, although from a low base.

Relatively subdued compared to last November high
But the performance remained relatively subdued when compared to the marked pace of growth seen by the PMI before the turn of the year. In fact, it is almost four points below the 51-month high reached in November last year. Although the rate of increase in new business edged up to a three-month high, it remained among the weakest registered over the past year and-a-half. Output growth slowed from May’s five-month high and input cost inflation picked up, leading to increased selling prices. In fact, the average PMI reading over quarter two (54.2) is the weakest since the final quarter of 2016.

Most forecast rising output in next year
Worries over price increases, possible future trade tariffs, the exchange rate and Brexit uncertainty all played their part in dampening positivity, but a majority of respondents still expect rising output in future.

Tony Piggott, Halo Financial’s commercial development manager says, “UK manufacturing activity continues to expand, albeit at a subdued pace compared to the final quarter of 2017. The ongoing uncertainty caused by escalating trade tensions globally, Brexit inaction and disagreement in Europe over immigration policy leave companies cautious to invest or enter into new orders.”

The upturn remained broad-based during June, the survey states. Output and new orders rose in the consumer, intermediate and investment goods industries. However, the overall rate of expansion in manufacturing output slowed, as growth of new order inflows improved only mildly.

On the other hand, June saw a solid improvement in the rate of job creation, with staffing levels rising at the quickest pace for three months. Employment increased in the consumer, intermediate and investment goods sectors. However, the overall rate of jobs growth remained below those seen through much of 2017.

Growth maintained and job creation improving
Dorrien Peters, head of manufacturing at law firm Irwin Mitchell, says, “Input price rises, trade tariff uncertainty and ongoing Brexit worries are having an impact on the positive sentiment amongst manufacturers.”

"Within this backdrop of subdued growth, it was pleasing to see a solid improvement in job creation. We must remember though that it was below the job growth recorded in most of 2017, which highlights the challenges that are currently being faced by the sector."

Christopher Barlow, partner at accountants and business advisors, MHA Macintyre Hudson, comments, “A subdued finish to the second quarter of the year with output growth slowing, but it is important to note that growth is still being reported. Higher output has been reported, but these were mainly fulfilled from backlogs of work and building of stocks.” “There is a possible silver lining in terms of the rate of increase in new business, but it appears that despite some recent good news stories in the sector uncertainty is again ruling the day.”

Higher output sustained and rising new business
Some companies noted that higher output had been partly sustained through inventory building and clearing backlogs of work. Rates of growth in new work received were broadly steady in both domestic and overseas markets. There was a rise in new export business, which was partly linked to increased sales to mainland Europe, China, South America and Australia.

But input costs at four month high
Input cost inflation accelerated to a four-month high in June, with companies reporting a wide range of inputs rising in price. Some noted that cost increases were being exacerbated by shortages of certain raw materials. Part of the rise in costs was passed on as higher selling prices.

Optimism still positive
Despite that, business optimism remained positive in June. Over 51% of the survey panel forecast output to rise over the coming year, linked to market growth, investment spending, organic expansion, planned promotional activity and higher capacity.

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