UK: UK Manufacturing Output Soars To Three-Year High

The UK's manufacturing sector is in robust health with output levels reaching a three-year high, according to a new survey.

The Markit/CIPS UK Manufacturing Purchasing Managers' Index (PMI) (3-page / 609KB PDF) showed growth in output, new orders and employment in the manufacturing sector. Meanwhile stocks of purchases grew at a record rate and suppliers' delivery times lengthened, while production expanded at the fastest rate in three months.

The PMI has now signalled growth for nine months in a row, after dipping below its "no-change mark" in July 2016, after the UK voted to leave the EU.

It rose to a three-year high of 57.3 in April, up from a four-month low of 54.2 in March 2017. The survey also found that output was driven by the strongest inflows of new work since January 2014, driven by a solid base of domestic work coupled with an increase in new export business for UK manufacturers.

The combination of strong market conditions globally and a weak sterling exchange rate meant that UK businesses saw improved demand from North America, Europe, Africa and Brazil.

However the weak sterling rate means the rate of purchase price inflation is above the survey's long-term average, even though it fell to a nine-month low in April. Manufacturers are passing on cost increases to clients but also paying higher prices for materials, producing supply-chain pressures and shortages for raw materials.

The survey results are good news for the manufacturing sector, which experts previously identified as being most at risk from the Brexit vote.

At an October 2016 restructuring and insolvency conference hosted by Pinsent Masons, the law firm behind Out-Law.com, 22% of attendees predicted mannufacturing would be the sector most adversely-affected by Brexit in the short term.

Manufacturing expert Nicole Livesey of Pinsent Masons said: "It is encouraging that the manufacturing sector is continuing to defy economists' expectations that the global and local political uncertainty would create a slowdown.  However, with the slow recovery of sterling and rising costs of raw materials, the sector must remain vigilant and on top of its game to ensure that this growth is maintained."

In January the government outlined a new industrial strategy, which Pinsent Masons manufacturing expert Neil Black said would give manufacturers the opportunity to innovate and collaborate to shape the sector's future.

IHS Markit senior economist Rob Dobson said of the PMI results: "The big question is whether this growth spurt can be maintained, especially given the backdrop of ongoing market volatility and a number of political headwinds such as elections at home and abroad. Other surges seen since the middle of last year have generally proved short-lived, as weak wage growth sapped consumer spending. If this happens again it will inevitably constrain manufacturing, even as the investment and intermediate goods producing sectors continue to expand."

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