Manufacturing at four year high driven by domestic demand and exports
Activity in Britain’s manufacturing sector jumped to its highest level in more than four years amid “solid” domestic demand and a wave of export orders on the back of the weaker pound.
The closely-watched IHS Markit/CIPS UK Manufacturing purchasing managers’ index (PMI) came in at 58.2 for November, marking its strongest reading since August 2013.
It was up from 56.6 in October and exceeded economist expectations of 56.5. A reading above 50 indicates growth.
Production gathered pace thanks to a raft of new orders that companies attributed to “solid domestic demand” and export business driven by higher sales to clients in Europe, the Americas, Asia and the Middle East.
The weak pound was still boosting the competitiveness of UK goods abroad, but the survey said that the currency was given less credit for helping raise demand than a year earlier.
Rob Dobson, a director at IHS Markit, said the November reading was a sign that the manufacturing sector had “shifted up a gear” as output growth, new orders and employment all gathered pace.
“On its current course, manufacturing production is rising at a quarterly rate approaching 2%, providing a real boost to the pace of broader economic expansion.”
The manufacturing industry benefited from a “broad-based” expansion, experiencing “strong and accelerated growth” in production and new orders in consumer, intermediate and investment goods – with the latter seeing its sharpest order increase since August 1994.
It resulted in a bigger backlog of work at UK factories, which increased for the first time in six months and sparking worker demand that led to the highest job growth rate since June 2014.
However, the sector was still feeling cost pressures, triggered by higher prices for oil and steel, combined with supply-chain constraints and the effects of the weaker pound.
Output prices followed suit, rising at their fastest rate in seven months as higher demand allowed companies to more easily pass on rising costs to customers.
Optimism is now relatively high, with around 50% of manufacturing firms surveyed expecting production to be higher within 12 months in light of company growth plans and improved market conditions.
The sterling exchange rate was hardly moved by the positive survey, though, and was trading lower by around 0.3% against both the euro and US dollar, at around 1.348 and 1.133, respectively.
Mike Rigby, head of manufacturing at Barclays, said: “We mustn’t overlook that cost challenges continue to pose a threat, not only from elevated import costs but also from the growing effect of domestic costs from sources such as energy and staffing which will all contribute to inflationary pressures.
“What the sector needs now is manufacturers following through, more and quicker, on investment intentions, particularly in areas such as smart tech, which is vital if the sector is to boost productivity and remain competitive at an international level.”
There are also questions over whether the trajectory of Brexit talks could affect sector growth.
Duncan Brock, director of customer relationships at the Chartered Institute of Procurement & Supply said: “We wait with bated breath to see if the EU negotiations manage to derail this accomplished end to the year or lift the sector to new heights with a clear path ahead for the UK.”