PMI forecasts strong second quarter

Figures from the CIPS/Markit Purchasing Managers’ Index (PMI) show the UK manufacturing sector reporting a strong start to the second quarter.

At 58 in April, from an upwardly revised figure of 57.3 in March, the seasonally adjusted PMI rose to its highest level since September 1994.

Manufacturing production increased for the eleventh month running in April, with the rate of expansion only slightly below March’s 15-and-a-half year high.

Underpinning the latest rise in output was the sharpest growth in total new business since January 2004 and a series record increase in new export orders. The forward-looking new orders to inventories ratio also stayed at an elevated level, suggesting production will continue to rise at a rapid pace in coming months.

Higher levels of total new work reflected improved global market conditions, client restocking and successful product promotions.

Increased overseas sales were particularly commonly reported from customers in China, mainland Europe, the Middle East, North America and Scandinavia, in many cases aided by the ongoing weakness of the sterling exchange rate.

The rate of expansion in output was strongest in the intermediate goods sector. Manufacturing employment increased for the third time in the past four months in April and at the fastest rate since February 2007. This followed the sustained period of job cutting seen throughout much of 2008 and 2009.

Higher employment mainly reflected increased production and sales requirements, amid evidence that current demand was testing capacity. This was exhibited by the first increase in outstanding business since backlogs data were first collected in November 1999. Low levels of stock at manufacturers and supplier delivery delays also contributed to the increase in backlogs.

Suppliers’ lead times lengthened to the greatest extent for almost 15-and-a-half years in April, as suppliers faced logistical problems in meeting the strongest monthly increase in purchasing of inputs since October 1994.

Subsequently, average input prices rose at the fastest rate since August 2008. Price rises were reported for a variety of inputs, including chemicals, feedstocks, food products, freight, fuel, metals, oil, paper, petroleum, polymers and timber.

Manufacturers passed on part of the rise in their costs to clients in the form of higher selling prices in April. Output prices rose for the sixth month running and at the fastest rate since October 2008.

David Noble, chief executive officer at the Chartered Institute of Purchasing and Supply, said: ‘The real turning point will come when manufacturers feel confident enough to increase their investment and start to build capacity again.

‘The good news is there are already signs this is starting to happen as employment levels are slowly rising on the back of strained capacity and backlogs of work reported for the first time in over a decade.’