UK manufacturing activity rises

Conditions in the UK manufacturing sector continued to improve at the end of the third quarter, according to the Markit/CIPS Purchasing Managers’ Index (PMI). 

The domestic market remained a prime driver of new business wins, while the weaker sterling exchange rate drove up new orders from abroad.  At 55.4 in September, up from 53.4 in August, the seasonally the Index rose to its highest level since June 2014.  The rebound in the PMI level since an EU-referendum related low in July has been sufficient to make the third quarter average (52.3) the best during the year-to-date.

September saw manufacturing production expand at the quickest pace since May 2014. Growth was led by the consumer goods sector, where output rose at the quickest pace in one-and-a-half years. New orders rose to the second-greatest extent since mid- 2014. Companies linked the latest increase to higher sales to both domestic and overseas clients, supported by promotional activity and (for exports) the weaker sterling exchange rate. Total new orders rose strongly at consumer and investment goods producers. A modest gain was also seen in the intermediate goods sector. September saw the level of incoming new export orders increase at the fastest pace since January 2014. UK manufacturers reported improved demand from clients in Asia, Europe, the USA and certain emerging markets. 

Employment rose for the second straight month, after declining throughout the earlier part of the year. Job creation was linked to increased capacity requirements, new order growth and the launch of new product lines.

Rob Dobson, senior economist at IHS Markit, comments: “The weak sterling exchange rate remained the prime growth engine, driving higher new orders from Asia, Europe, the USA and a number of emerging markets. The domestic market is also still supportive of growth, especially for consumer goods. Further step-ups in growth of new business and output in the investment goods sector may also be a sign that capital spending is recovering from its early year lull, in the short term at least.

“On the price front, input costs are still rising at a double-digit annual rate, as the weaker sterling exchange rate drove up import prices. This led to a further solid increase in output charges. However, with rates of inflation easing in both cases, it looks as if the recent surge in inflation may not quite reach the peaks of previous bouts such as in 2008 and 2010-2011.”