01 November 2010
Increased orders and export growth boost UK manufacturing
Increased orders and faster export growth boosted UK manufacturing output last month as a leading sector bellwether notched up record growth in factory inventories.
The widely respected monthly purchasing managers' index (PMI) from the Chartered Institute of Purchasing and Supply (CIPS) showed UK manufacturing production accelerating for the first time in seven months in October. Output rose in response to faster inflows of new business and a solid increase in new export orders. However, supply-side constraints and expected future input price increases led to a marked rise in purchasing and survey record growth in raw material stocks.
At 54.9 in October, up from September's ten-month low of 53.5, the PMI rose for the first time since reaching a fifteen-and-a-half year high in May. The PMI has now remained above the neutral 50.0 mark for fifteen successive months.
Strong output growth in the intermediate goods sector underpinned the increase in production with modest expansions also being seen in the capital and consumer goods sectors. Manufacturing output has now risen for seventeen successive months.
Companies linked the increase in total new orders to higher export sales, improved marketing and successful product promotions. New export orders rose sharply in October, and at the fastest pace in five months, representing a marked turnaround from the reduction seen in September. Companies reported higher sales to mainland Europe, Latin America, the Middle East and Africa.
The rate of job creation picked up sharply too. Employment rose at the fastest rate since June, reflecting improved demand, higher production and increases to sales and support staff. Jobs were added in the consumer, intermediate and investment goods sectors. There were further signs that supply-side factors and expected input cost increases were influencing the purchasing and stock holding decisions of UK manufacturers.
Input buying volumes rose for the thirteenth consecutive month in October. The rate of increase accelerated sharply, as companies raised purchasing to guard against supply shortages, rising costs and further vendor delivery delays. Stocks of purchases subsequently rose at the sharpest pace in the survey history.
Rob Dobson, Senior Economist at Markit and author of the UK Manufacturing PMI said the improvement would provide reassurance that manufacturing remained a driver of UK economic growth at the start of the final quarter. He went on: "Looking ahead, business confidence, private investment spending and exports will be important to sustaining the recovery as growth derived from the public sector and consumers is hit by austerity measures and rising job insecurity. To this end, the October rebound in investment goods production and a sharp increase in manufacturing job creation provide early positive portents."
At CIPS, CEO David Noble (pictured) added that although it was very positive to see the sector expanding strongly again, it was difficult to predict the impact of fluctuations in export markets so the recovery may continue to be bumpy. He also warned that while new orders were providing manufacturing purchasers with a mandate to increase activity and hire new staff, there would inevitably be "hard graft ahead" as pressure on supply chains remained a big concern.
Meanwhile, Barclays head of manufacturing Graeme Allinson commented that while "conventional wisdom points to further challenges on the horizon there is little evidence of a manufacturing slow-down at present. He also believes that with GDP above expectations there was also hope that the immediate impact of public sector cuts may not be as bad as expected.
"However," he concluded, "in spite of a relatively positive recession and now post-recession story, an ongoing lack of investment is set to keep UK manufacturing well behind the global curve."
Barclays Bank plc
Chartered Institute of Purchasing & Supply
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