UK manufacturing 'hits 29-month high'

3 min read

Consumer spending and exports have been identified in two reports as a key factors driving the current resurgence in UK manufacturing.

EEF and Markit have published reports indicating renewed confidence in the sector with EEF stating that manufacturers have upgraded their growth forecasts and Markit/CIPS’ Purchasing Manager’s Index (PMI) signifying five consecutive months of expansion. The seasonally adjusted PMI rose to a 28-month high of 54.6 in July, up from a revised reading of 52.9 in June. Figures above 50.0 indicate growth.

Furthermore, figures released today by the Office of National Statistics (ONS) say production output rose 0.6 per cent between the first and second quarter this year, with the largest contributor to this growth coming from manufacturing, up 0.7 per cent over the same period. Added buoyancy has been provided by SMMT, which predicts a rise in new car registrations for 2013 of 2.216 million units, 8.4 per cent ahead of 2012.

EEF’s half-year Economic Prospects reports that the UK economy will likely pick up momentum this year with increased consumer spending remaining a key driver of growth, and improved confidence supporting a recovery in business investment.

Consequently, EEF is forecasting GDP growth of 1.1 per cent this year, up from 0.9 per cent. Growth is then expected to steadily increase through 2014 to 1.8 per cent.

EEF and the PMI concur that recovering domestic demand and continuing export growth, particularly outside the EU (Australia, China, Kenya, Mexico, the Middle East, Nigeria, Russia and the US), will help sustain the recovery.

Manufacturer’s organisation EEF added that activity in the Eurozone has largely stabilized and, as the UK’s main export market, poses less of a risk to UK growth prospects.

In a statement David Noble, CEO at the Chartered Institute of Purchasing & Supply said, ‘The much vaunted march of the makers has finally materialised with the UK manufacturing sector’s output growth hitting a 29-month high in July.

‘Exports have been critical to this success, but it is the broad based nature of the sector’s performance which endorses the view we are on track for solid and accelerated growth in the coming months.

‘The ability of British manufacturers to market themselves abroad was always seen as crucial to long-term success and so it has proved. New export business has grown at its quickest rate in two years in a sign that macro-economic conditions are improving. Domestic performance has also been strong.

The consumer goods industry has led the recovery, however it is perhaps even more encouraging to see increasing output and orders in both the intermediate and investment goods industries as well.’

Responding to figures from ONS and PMI, Philippa Oldham, head of manufacturing at IMechE cautioned that Britain’s manufacturing sector is over three per cent below its pre-recession peak.

‘We must…ensure this is not a false dawn for our beleaguered manufacturing sector,’ she said. ‘Government must gain cross-party support on a long-term industrial strategy which engages with industry and addresses the engineering skills shortage, invests in new process and business model development and provides greater access to sufficient capital investment for companies to develop new products and manufacturing processes.’

In related news, SMMT has raised its forecast for 2013 new car registrations, predicting sales will reach 2.216 million units, 8.4 per cent ahead of 2012.

The organisation, which represents motor manufacturers and traders, has also posted figures showing a seventeenth consecutive rise in new car registrations in July, growing 12.7 per cent to 162,228 units.

Registrations of alternatively-fuelled vehicles grew 17 per cent in the month to 2,432 and reached 17,859 units for the January to July period. Plug-in car registrations have risen 70.7 per cent over the first seven months of 2013 to 1,885 units.

Diesel registrations enjoyed a 13.5 per cent rise compared to July 2012 whilst petrol registrations rose 11.8 per cent over the same period.

‘Strong business and consumer confidence in July saw the new car market continue to rise, posting double-digit growth in the month. Now we have evidence of consistent growth, we have raised our forecast for 2013,’ said Mike Baunton, SMMT interim chief executive.

Derek McAllan, UK head of automotive retail at KPMG, added, ‘The UK new car market continues to significantly outperform the rest of the UK retail sector and most European car markets, with monthly sales in July this year up 12.7 per cent compared to July 2012.

‘It is also a relief to see some indication of a recovery in mainland Europe this month. Both Germany and France saw car sales rise in July by two per cent and one per cent respectively, while Italy saw sales fall by two per cent. Spain was the star performer in Europe for July, with sales up July 14 per cent above last year, although these numbers were boosted by a government backed scrappage scheme.