Manufacturing makes strong start to 2017

The UK manufacturing sector made a strong start to 2017 with output rising at the fastest rate since May 2014. New order intakes expanded at a robust pace and, according to the Markit/CIPS Purchasing Managers’ Index (PMI), price pressures intensified – input cost inflation surged to a survey record high and output charges also increased at one of the steepest rates in the series’ history.     

The Index posted 55.9 in January, just below December’s two-and-a-half year high of 56.1. The headline PMI has now remained above the neutral mark of 50.0 for six straight months.

The domestic market was the prime source of new business wins in January. There was also a modest increase in new export orders, although the pace of expansion was noticeably slower than during the prior survey month. Where an increase in new work from overseas was reported, this was linked to improving global market conditions and the weak sterling exchange rate.

By sector, the strongest growth of output and new orders was registered by intermediate goods producers (semi-finished products).

Manufacturing employment rose for the sixth successive month in January – the faster pace of job creation was signalled at SMEs, whereas the increase at large-sized producers was only mild.

The January report sees the official launch of a new index tracking business optimism – the Future Output Index – based on a question asking companies if they expect production to be higher, the same or lower in one year’s time. Confidence rose to an eight-month high in January. Almost 51% of respondents expect output to rise over the next 12 months, reflecting new market opportunities and planned product launches. 

David Noble, group chief executive officer at the Chartered Institute of Procurement & Supply, comments: “The sector was awash with optimism, recording an increase in new orders and the fastest rise in activity since May 2014. The domestic market led the way in the growth of new orders, alongside robust consumer, intermediate and investment goods production, to offset the softer expansion in export orders.

“The ongoing boost in staffing levels, recorded for the sixth consecutive month, showed SMEs with the largest appetite for expansion, though larger firms also increased employment. With the sector’s surge of positive business sentiment to an eight-month high, this boost to the employment figures will give the sector the robust platform it needs for opportunities ahead, as the UK remains the fastest growing economy in the G7.

“But there were pressures on the price front as input costs rose at their fastest rate in 25 years and higher commodity prices made an impact on margins along with the weaker pound. With these ongoing cost burdens, manufacturers were no longer able to absorb these costs themselves as output prices grew at one of the fastest rates since records began. Consumers must soon be wondering whether these rising costs will impact on their daily life.”