Manufacturing growth gathers pace

The rate of expansion in the UK manufacturing sector accelerated again in August. This was highlighted by the seasonally adjusted IHS Markit/Cips Purchasing Managers’ Index (PMI) posting 56.9, up from 55.3 in July, to its second- highest level in over three years.

All five of the PMI components – output, new orders, employment, suppliers’ delivery times and stocks of purchases – were consistent with a stronger performance for the manufacturing industry during August.

Production rose at the steepest pace in seven months, underpinned by faster intakes of new work received. Moreover, rates of expansion in both variables were among the best registered since mid-2014.

The domestic market was the prime source of new contract wins, while the trend in new export business also remained robust. Although the rate of improvement in foreign demand eased from July’s near-record high, it remained among the strongest seen since new export orders data were first collected in January 1996.

The stronger performance of the manufacturing sector filtered through to the labour market in August. Job creation was recorded for the 13th straight month, with the rate of increase the quickest since June 2014.

Almost 31% of companies reported an increase in purchase prices, which they generally linked to the rising cost of commodities. Some noted that purchase price pressures had been exacerbated by shortages developing for certain key inputs. Supply-side constraints were also reflected in the trend in vendor lead times. Manufacturers’ selling prices rose at a solid, yet slower, pace.

Business optimism improved to a three-month high in August. Positive sentiment was attributed to rising demand, new product launches, efforts to improve market share and expand into new markets, a stronger global economy and planned investment spending. Over half of companies expect output to be higher in one year’s time, compared to less than 7% that forecast a decline.

Rob Dobson, director at IHS Markit, said: “The key question is whether this positive start to the second half of the year can be sustained. This is looking increasingly likely during the near-term, given the breadth of the expansion. Business conditions improved across the three main sub- sectors – consumer, intermediate and investment goods – and at smaller and large-scale producers alike. Business confidence also rose to one of its highest levels in over a year.”