01 May 2012

PMI slows to 50.5 as export orders fall

UK manufacturing output expanded for the fifth month running in April, but the rate of increase eased to its weakest in the year-to-date, partly due to a sharp reduction in new export orders, particularly in the consumer goods sector.

The well respected Markit/CIPS UK Manufacturing Purchasing Managers' Index (PMI) dipped to 50.5 in April, below March's reading of 51.9, but still above the neutral 50.0 mark that separates expansion from contraction. The PMI has signalled growth in each of the past five months.

Commenting on the new data, Lee Hopley, Chief Economist at the manufacturers' organisation EEF, said: "The good news is that manufacturing clocked up a fifth straight rise, whilst cost pressures have eased a little and some firms are still recruiting. The bad is that ever-present Eurozone woes are still bearing down on the short term outlook, with some suggestion of renewed downward pressure on export orders over the past month."

Total new order books fell slightly for the first time in five months in April. This mainly reflected a sharp drop in new export business – the steepest since May 2009 – resulting from weaker demand from mainland Europe, the US and East Asia. There were also reports of tough market conditions and strong competition.

Meanwhile, manufacturing employment edged higher, with a marginal increase in payroll numbers reported for the fourth successive month. Where an increase in staffing was indicated, this was attributed to higher output and the introduction of new product lines. However, some firms reported reducing headcounts due to weaker demand and through redundancy programs.

Senior Economist at Markit and PMI author Rob Dobson believed the UK recovery was always likely to be bumpy and subdued. "What manufacturers really need to see is a marked improvement in new order inflows, so April's sudden sharp drop in new export orders was a real disappointment," he added.

David Noble, CEO at the CIPS said the decline in export demand placed the sector in a more delicate position than at the start of the year. " The health of order books during the next few months will be the critical factor if overall employment levels are to stay on an even keel," he concluded.

Author
Ken Hurst

Supporting Information

Companies
Chartered Institute of Purchasing & Supply
EEF (Engineering Employers Federation)

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