UK manufacturing at highest growth level in two years

Sector has PMI reading of above 50.0 for third consecutive month, with overall economic growth expected to hit 0.5% in Q2

UK manufacturing at highest growth level in two years

Things are certainly starting to look a bit brighter for old Blighty, if the latest stats on manufacturing output are anything to go by. According to the monthly UK Manufacturing Purchasing Managers’ Index (PMI) from financial information services company Markit and the Chartered Institute of Purchasing and Supply (CIPS), the manufacturing sector has grown at a rate not seen since the heady days of May 2011.

Most readers will know that a PMI reading of above 50.0 signifies growth in a certain sector, so it is hard not to be encouraged by the fact that manufacturing has now tallied above that magic marker for three months on the bounce. Indeed, the June reading of 52.5 represents an increase of one whole point on last month, and the average reading over the second quarter (Q2) as a whole (51.4) was the highest since Q2 2011. The latest figures also show that levels of production and new business in the manufacturing sector have risen at their highest rates since April 2011 and February 2011 respectively. They go on to reveal a marked improvement in domestic market conditions and a strengthening in demand from overseas.

Interestingly, one of the factors identified by companies for another increase in new business – that’s four months in a row now – was ‘better weather conditions’. Given that the data was collected in the period 12-25 June, we can only assume respondents were relying on the definition ‘slightly less rain than in May’ when describing conditions as ‘better’. Nevertheless, we have no real qualms with the other two contributing factors which were strengthening confidence among clients and customers, and the launch of new product lines. And whilst manufacturing employment was broadly unchanged in June, we would like to think a positive trend will start to show its face should PMI figures continue on the same path in the coming months.

Although price pressures remained subdued during the latest survey period, more bright lights are to be found in the revelation that input costs have declined for the third straight month, reflecting lower costs for chemicals, feedstock, metals, packaging and plastics. Meanwhile, average factory gate prices fell for the first time in three-and-a-half years in June – linked mainly to strong competition – with lower selling prices a predictable outcome of the reduced input costs.

Needless to say, reaction to these latest figures has been roundly optimistic, with the employment side of things proving the only downer.

“The UK manufacturing sector made positive strides on the recovery path during the second quarter of the year,” said Rob Dobson, senior economist at survey compilers Markit.

“The near-term outlook for output also remains on the upside, as above-trend sales growth depleted inventories that manufacturers will need to rebuild later in the year. Job creation is still weaker than hoped for, but this should improve if solid demand growth is sustained and eats into spare capacity.”

However, here’s where things start to look particularly hopeful, as Dobson adds: “The survey suggests that manufacturing output rose by around 0.5% over the second quarter. Taken with recent signs of service sector strength and a stabilising construction industry it paints a picture of UK economic growth picking up from the opening quarter’s 0.3% to at least 0.5%.”

And with reports circling last week that we may never have even entered a double-dip recession, it seems that a triple-dip recession is now as likely as an England World Cup triumph next summer. Happy days, indeed. 

Adam Pescod
Adam Pescod

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