01 February 2016

UK manufacturing growth accelerates at start of 2016

The start of 2016 saw a modest improvement in the rate of growth in the UK manufacturing sector. This was highlighted by the seasonally adjusted Markit/CIPS Purchasing Manager’s Index (PMI ) rising to a three-month high of 52.9, up slightly from 52.1 in December.

The PMI has remained above the neutral 50.0 mark for 34 successive months.

Manufacturing production increased again during January, reflecting improved inflows of new work from the domestic market. Moreover, the rate of expansion in output accelerated to a 19-month high. The trend in new export orders, however, fell back into decline.

Companies linked lower overseas sales to stronger competition and tough market conditions. Some firms also noted that, despite recent easing, the sterling-euro exchange rate remained an issue impacting on trade flows with the eurozone.

A solid rate of expansion was also signalled by intermediate goods producers. The performance of large-sized manufacturers was especially positive, whereas growth was comparatively mild at SMEs.

Part of the increase in production volumes was achieved through a further substantial reduction in backlogs of work. January saw the level of work-inhand (but not yet completed) depleted at the fastest pace for four months

With the trend in outstanding business signalling spare capacity at a number of firms, manufacturing employment was reduced for the fourth time in the past six months. Although the rate of decline in staff headcounts was only moderate, it was nonetheless the fastest for almost three years.

Companies linked job cuts to redundancies, retirements, restructuring initiatives, efficiency improvements and efforts to control costs. The ongoing weakness in global commodity prices led to a further substantial reduction in manufacturers’ average purchasing costs during January.

Average input prices fell at the fastest rate for four months and to one of the greatest extents during the 24-year survey history. There were reports of lower prices for chemicals, metals, oil and plastics.

Dave Atkinson (pictured), head of manufacturing at Lloyds Banks Commercial Banking, said: “It is encouraging to see resilience amongst British manufacturers despite uncertainty over the potential Brexit and weaker international trade conditions, and Britain’s makers continue to outperform a number of other G7 members.

“The automotive industry is particularly buoyant, having made more cars in 2015 than in any other year since 2005. Manufacturers are telling us that they are reaching capacity on current resources, which is driving a need to invest in plant and machinery and automation to improve productivity and take advantage of the huge opportunities in the automotive supply chain. Despite the uncertainty in some key emerging markets, demand so far appears to be holding up, though manufacturers will be cautious as to how long this headwind could last.

“Continuing to support firms throughout economic fluctuations remains crucial if Britain’s manufacturers are to remain a leading force in the global marketplace.”

Ian Vallely

Supporting Information

Lloyds Banking Group

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