UK Manufacturing PMI Climbs to Ten Month High

The latest UK Purchasing Manager’s Index (PMI) report on UK manufacturing highlights that August 2016 saw solid rebounds in the trends in UK manufacturing output and incoming new orders. Companies reported solid inflows of new work from both domestic and export sources, the latter aided by the sterling exchange rate. Employment rose for the first time in the year-to-date.

At 53.3 in August, the seasonally adjusted Markit/CIPS Purchasing Managers’ Index® (PMI®) recovered sharply from the 41-month low of 48.3 posted in July following the EU referendum.

The month-on-month increase in the level of the headline PMI (5.0 points) was the joint greatest in the near 25-year survey history. The gains in the indices tracking output and new orders were similarly among the steepest on record.

Manufacturing production increased at the fastest pace in seven months during August, an improvement on the contraction registered in the prior month. All three of the market groups covered by the survey returned to growth, with the strongest expansion registered in the consumer goods sector.

Underpinning the scaling up of production volumes was a marked 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.

The negative consequences of currency movements were felt in the form of rising input costs during August. Input price inflation surged to a five-year record, with almost 44% of firms reporting an increase in purchasing costs. However, it should also be noted that the pace of input price inflation has yet to scale the peaks reached during previous bouts of high cost inflation (such as those registered during 19941995, 2004, 2008 and 2010-2011).

Output prices also rose at the fastest pace for five years in August. Moreover, the month-on-month increase in the index tracking charges was among the steepest in the series history.

Employment rose for the first time during the year-to-date, albeit only moderately. Job creation was seen at SMEs, whereas cuts were made at large-scale producers. Higher staffing levels aided efforts to reduce backlogs of work.

 

Purchasing Managers’ Index® (PMI®) surveys are now available for over 30 countries and also for key regions including the eurozone. They are the most closely watched business surveys in the world, favoured by central banks, financial markets and business decision makers for their ability to provide up-to-date, accurate and often unique monthly indicators of economic trends.

Source: Markit/CIPS UK Manufacturing PMI® 1st September 2016

 

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