04 January 2016

Manufacturing slows further at end of 2015

The end of 2015 saw the rate of growth in the UK manufacturing sector slow further from the recent peak reached in October. At 51.9 in December, the seasonally adjusted Markit/CIPS Purchasing Manager’s Index (PMI) slipped back towards its long-run survey average of 51.5.

Over the final quarter as a whole, the average readings for the headline PMI, output index, new orders index, new export orders index and employment index were all above their respective averages.

However, averages over 2015 were in each case below those achieved in 2014. Manufacturing production rose for the 33rd month running in December, underpinned by higher intakes of new business from both domestic and export clients.

The consumer goods sector remained the prime driver of production and new order growth, despite seeing its rates of expansion ease over the month. Similar decelerations were also seen at intermediate and investment goods producers.

New export orders rose for the fourth consecutive month in December, although the rate of increase eased to its weakest since September. Growth of new export business was driven by improved demand from clients in continental Europe, the USA, China, Scandinavia, Turkey, Singapore and the UAE.

The sustained upturn in output and new orders encouraged manufacturers to implement a modest increase in staffing levels during December. Employment rose for 13th time in the past 32 months, following no change in November. Although the rate of job creation was only mild, the expansion nonetheless remained broad-based in nature. Increases were signaled across the consumer, intermediate and investment goods sectors and at SMEs and large-sized companies alike.

Higher employment also supported efforts to clear backlogs of work, as did a further reduction in stocks of finished goods. Average input prices continued to fall at a sharp pace during December, albeit the slowest signaled in five months.

Lower costs were attributed to recent falls in global commodity prices, especially oil. There was also some mention of exchange rate factors contributing to the reduction. Part of the decline in purchasing costs was passed through to clients in the form of lower output charges. However, the rate of deflation was only marginal and the weakest during the current four-month sequence of decrease.

Lee Hopley, chief economist at EEF, said: “December’s PMI reading points to manufacturing ending 2015 with neither a bang nor a whimper. Activity levels appear to have been holding up in line with the long-run average as output and new orders tick over, and no more.

“With the CIPS report confirming our view that manufacturing output is likely to be flat over 2015 as a whole, the question now is whether the sector can regain much needed momentum in 2016. Industry PMI readings from Europe offer a few reasons for optimism that a recovery across the region will finally start to benefit UK exporters, but further weakening in China is likely to be a counteracting force into 2016.”

Ian Vallely

Supporting Information

Markit Group Ltd

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