Manufacturing figures climb to ten-month high

According to figures released today by IHS Markit and the Chartered Institute of Procurement & Supply (CIPS), August saw a rise in the trends in UK manufacturing output and incoming new orders. At 53.3, the Purchasing Managers’ Index (PMI) recovered sharply from the 41-month low of 48.3 posted in July following the EU referendum. A score of 50 or more indicates expansion.

“The August PMI data indicates a solid rebound in the performance of the UK manufacturing sector from the steep downturn that followed the EU referendum,” said Rob Dobson, senior economist at IHS Markit. “Companies reported that work that had been postponed during July had now been restarted, as manufacturers and their clients started to regain a sense of returning to business as usual.”

The increase between July and August was the joint-greatest in the survey’s 25-year history. The gains in the indices tracking output and new orders were also among the steepest on record.

David Noble, group chief executive officer at CIPS, added: “With exchange rates supporting more orders overseas, the counter effect of a lower pound meant that purchasing costs were higher, which was reported by 44% of procurement managers.”

Staffing levels rose at a modest pace, after falling throughout the year-to-date. SMEs fared better with more hires, whereas larger companies reported shedding some jobs.

The scaling up of production volumes was underpinned by an increase in the level of new work received. New business rose at one of the quickest rates in the year-so-far, as companies benefited from improved inflows of new work from both domestic and overseas clients. There were also reports of stronger demand, product launches and clients committing to new and previously postponed contracts.

Improved sales volumes to markets such as the USA, Europe, China, South-East Asia, the Middle- East and Norway led to a further increase in new export business during August. Moreover, the rate of growth accelerated to a 26-month high. The depreciation of the sterling currency was by far the main factor manufacturers cited as supporting the upswing in new export work.

Dobson added: “Inflation is raising its ugly head, however. Rates of increase in input prices and output charges both hit five-year highs, which manufacturers placed squarely at the door of the cost impact of sterling on import prices. It is too early to say whether the rebounds in growth and inflation will be sustained, but the upturn in August suggests that the weaker exchange rate and recent policy action have helped to avert a downturn.”

This is the cautiously optimistic view shared by other figures in the UK manufacturing industry.

“The August UK PMI results are spectacular for UK manufacturing,” said Stephen Cooper, head of manufacturing at KPMG UK, who went on to comment: “One swallow does not a summer make, and as autumn progresses, we will see if this is a blip, or whether it’s the start of a long-term trend.

“UK manufacturers need to continue to use the momentum of their newfound competitive price for as long as possible, and, as ever, to continue to practice careful management, and accurate forecasting of the supply chain, particularly with the unwelcome pickup in input pricing reported this month.”

Andy Hodgson, head of drives & motion control, Siemens UK & Ireland, said: “While the good news has undoubtedly been influenced by better export conditions for UK manufacturers, there is no doubt we should expect continued market volatility for the near future.And, as always, a continued focus on growing productivity across industry still remains essential.”

Steve Lindsey, chief executive of Lontra: “For home-grown high growth engineering firms, today’s figures reflect in part the benefit of increased overseas revenues from a weakened Sterling. In parallel to this, we need to ensure that we remain attractive to the world’s best engineers so that we can continue to recruit them from both home and abroad, as we have done successfully to date.”

Laith Khalaf, senior analyst at Hargreaves Lansdown, said the manufacturing data added to a picture of improved sentiment since the EU referendum result in June.

“It certainly seems that companies and consumers alike are carrying on with business as usual now the referendum is disappearing into the rear view mirror,” he said. "There's still a long way to go until Britain leaves the EU, and in the meantime, businesses still need to make money, so they can't just sit on their hands.”

He added that the sharp improvement in sentiment calls into question the Bank of England's decision to cut interest rates from 0.5 to 0.25% at the beginning of August.