Positive outlook for manufacturing

The upturn in the UK manufacturing sector slowed further during February. At 55.2, the seasonally adjusted IHS Markit/CIPS Purchasing Managers’ Index (PMI) fell to an eight-month low and lost further ground after hitting a 51-month high last November.

Manufacturing production increased at the slowest pace for 11 months in February, with decelerations seen across the consumer, intermediate and investment goods sectors. Brighter news was provided by the trend in new orders, which rose at a faster pace than in January. Companies indicated that domestic demand strengthened, while new export business rose at a solid (albeit slower) pace.

UK manufacturers’ outlook also remained positive in February. Almost 56% of companies forecast that output would be higher in one year’s time, compared to only 6% expecting a decline. Business confidence was linked to planned expansions, rising new order inflows, new product launches, investment activity and marketing efforts.

The combination of ongoing expansion and expected future output growth encouraged further job creation at UK manufacturers in February. Employment rose for the 19th month in a row, with the rate of expansion the second-fastest since mid-2014. The increase in capacity aided efforts to reduce backlogs of work, which fell for the second straight month.

Rising demand also underpinned a further increase in manufacturers’ purchasing activity during February. However, the rate of increase in input buying volumes slowed to an eight-month low. Companies indicated that rising demand for inputs was causing shortages to develop, leading to further lengthening of average vendor lead times and higher prices charged by suppliers.

Average input costs rose sharply during February, as manufacturers experienced price increases for a broad range of commodities and raw materials. Part of the increase in purchasing costs was passed on to clients in the form of higher output charges. However, rates of inflation in both price measures were slower than those signalled in the prior survey month.

Duncan Brock, director of customer relationships at the Chartered Institute of Procurement and Supply, said: “Amidst these signs of a moderate slowdown, it was supply chain disruptions that were largely at fault. Suppliers underperformed not only on the timely delivery of goods but in their inability to meet the demand from makers for some raw materials. This intensified capacity issues and acted as a drag on overall purchasing activity.”