Monday 18 June 2018

Manufacturing output eases to eight-month low

The Markit/CIPS UK Manufacturing purchasing managers’ index showed a reading of 55.2 in February.

Workers in a factory, as output in Britain’s manufacturing sector (PA)
Workers in a factory, as output in Britain’s manufacturing sector (PA)

By Ben Woods, Press Association Chief City Correspondent

Activity in Britain’s manufacturing sector drifted to an eight-month low in February as a jump in new orders failed to counter a slowdown in production.

The closely watched Markit/CIPS UK Manufacturing purchasing managers’ index (PMI) showed a reading of 55.2 last month, down from January’s 55.3, but above economist expectations of 55.0.

A reading above 50 indicates growth.

Despite new orders picking up pace over the period, companies saw production growth eke out its slowest expansion for nearly a year.

Positive news was provided by other survey indicators that are suggesting output growth may revive in the coming months Rob Dobson

The sluggish performance marks a stark contrast to the final months of 2017 when manufacturers ended the year on a strong footing, with output climbing to a four-year high in November.

Sterling was marginally lower against the US dollar at 1.37 shortly after the announcement. Versus the euro, the pound was slightly ahead at 1.12 euro.

Rob Dobson, director at IHS Markit, said February’s performance gave “mixed signals” on the health of the UK manufacturing sector.

He said: “The PMI’s Output Index fell to its second-lowest level since the EU referendum and, based on its past relationship with official ONS data, is consistent with only a subdued 0.4% quarterly pace of growth in production volumes.

“This would represent a marked downshift from the 1.3% increase signalled for the final quarter of 2017, providing a further brake on the rate of expansion in the wider economy.

“However, positive news was provided by other survey indicators that are suggesting output growth may revive in the coming months.

“New orders showed the largest monthly gain since November and are outpacing the rate of growth in output to one of the greatest extents in more than a decade.”

The survey revealed robust demand for UK goods last month, as new export business saw close to two years of consecutive month-on-month growth.

While the USA, China, Europe, Brazil and East Asia all showed a healthy appetite for British-made products, the pace of expansion slipped to its lowest level for fourth months.

Manufacturers were also feeling the force of biting price pressures, with more firms passing down surging input prices to customers in the shape of higher costs.

However, companies brushed aside February’s choppy conditions to strike a positive note on future performance. Around 56% of firms expect output to be higher a year from now in contrast to 6% expecting a fall.

Howard Archer, EY Item Club’s chief economic adviser, said: “The outlook for manufacturing still looks bright on the foreign demand side, but domestic conditions could prove challenging over the coming months despite February’s reported improvement in orders.

“On the domestic demand front, still-squeezed consumer purchasing power and business caution over investment amid significant uncertainties largely focused on Brexit are a challenging combination for manufacturers.

“Manufacturers will be hoping that the UK and EU can come to near-term agreement on a post-Brexit transition arrangement – and that this dilutes uncertainty and encourages businesses to be more positive in their investment decisions and purchases of capital goods.”

The update comes after official figures last week showed slower economic growth than previously thought in the final three months of 2017.

The Office for National Statistics (ONS) said gross domestic product (GDP) grew by 0.4% in its second estimate for October to December 2017, revising down its first reading of 0.5%.

Press Association

Today's news headlines, directly to your inbox every morning.

Editors Choice

Also in World News