British manufacturing booms with Brexit on horizon

The UK manufacturing sector had a spectacular start to Q2 2017, hitting a three-year high in the Purchasing Managers’ Index (PMI) at 57.3 in April.

According to the Markit/CIPS UK Manufacturing PMI, growth of output, new orders and employment, and stocks of purchases rose at a survey record rate and suppliers’ delivery times lengthened. Last week, the top UK town for manufacturing jobs was revealed.

That 57.3 level in April was up from March’s four-month low of 54.2 (survey data was collected 11-25 April).

The PMI has indicated expansion for nine months in a row – the last time it registered below its no-change mark was July 2016, the month following the EU referendum result.

Manufacturing production rose at the fastest pace in three months, with the strongest inflows of new work since January 2014. The domestic market remained the principal source of new contract wins.

Exports see solid increase

New export business rose solidly, unsurprisingly thanks to the historically weak sterling exchange rate and stronger global market conditions. Higher demand from overseas originated in North America, Europe, Africa and Brazil.

Cost pressures – being absorbed by clients

While the exchange rate favoured exports, it also produced cost pressures for UK manufacturers. The rate of purchase price inflation remained elevated and above the long-term survey average, despite easing to a nine-month low. The good news for UK firms was that the pace of increase was down sharply from January’s record high. Manufacturers continued to pass on higher costs to clients, leading to a further increase in average output charges.

Higher prices were paid for chemicals, metals and plastics.

“Snap election fails to dampen the spirits of industry”

Rob Dobson, Senior Economist at IHS Markit, said: “Although only accounting for 10% of the economy, the upturn in the manufacturing sector represents some welcome good news after the sharp slowing in GDP seen in the first quarter. The big question is whether this growth spurt can be maintained, especially given the backdrop of ongoing market volatility and a number of political headwinds such as elections at home and abroad. Other surges seen since the middle of last year have generally proved short-lived, as weak wage growth sapped consumer spending. If this happens again it will inevitably constrain manufacturing, even as the investment and intermediate goods producing sectors continue to expand.”

Duncan Brock, Director of Customer Relationships at the Chartered Institute of Procurement & Supply, added: “The UK manufacturing PMI sprung back to a three year high in April after a brief blip in March. Spring has ushered in green shoots of growth with April marking the ninth consecutive increase in manufacturing employment. The calling of a snap election has failed to dampen the spirits of industry with output growing at the fastest rate in three months [Ed note: Although the election was called on 18 April, towards the end of the reported period, 11-25 April].

“While the major political parties debate how best to leave Europe, British manufacturers have continued to increase their exports to the continent. A weaker pound has kept British products competitive on the world stage and encouraged the twelfth successive rise in manufacturing exports.”

“Suppliers struggling to keep up with demand”

Brock added: “The British manufacturing industry is moving at such a pace that suppliers are struggling to keep up with demand. Delivery times for raw materials have increased for the twelfth successive month and there are signs of shortages for both metals and plastics. With input costs rocketing upwards, some manufacturers are beginning to stockpile raw materials to protect against future price rises. So long as sterling’s buying power remains weak, however, consumers should prepare themselves for higher prices.”

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