PMI points to seventh month of expansion for Britain’s manufacturers

The latest PMI from Markit/CIPS indicates that UK manufacturers are continuing to enjoy an encouraging start to 2017 with quarterly output growth close to 1.5 per cent.

The seasonally adjusted PMI (Purchasing Managers’ Index) posted 54.6 in February, a three-month low and down further from December’s two-and-a-half year high but above the long-term average of 51.6.

Increases in new business are said to have been supported by improved domestic and overseas demand, with the weakness of sterling continuing to help exports.

February data pointed to a further increase in UK manufacturing production with output growth remaining steady across the three product categories of consumer, intermediate and investment goods. Underpinning the latest increase in output was a further solid expansion of new order volumes.

Companies indicated that growth of new business from the domestic market slowed, but noted that this was partly offset by a sharp acceleration in the rate of increase in new export business, which rose for the ninth successive month in February. Where an increase was reported, companies attributed this to improved sales to clients in mainland Europe, the USA, Asia, Australia, Canada and Ireland.

Manufacturers are maintaining a positive outlook with almost 50 per cent expecting output to be higher in one year’s time, compared to six per cent anticipating a decline. Optimism was linked to forecasts of improved demand, increased capital investment, company expansion plans and new product releases.

Business confidence underpinned further increases in employment and purchasing activity during February but rising demand for raw materials led to shortages and greater pressure on supplier capacity.

Justin Benson, a director in KPMG’s manufacturing practice, said: “With another month of PMI data above the long-run average, and solidly in expansion territory, manufacturers must surely have a spring in their step this month.

“Albeit at a slower pace, another increase in new order volumes, driven mainly by overseas orders, has meant that almost 50 per cent of UK manufacturers expect production to be higher in 12 months’ time. Despite the increase in input costs, business confidence is on the rise, leading to further job creation across the spectrum of manufacturers. While this is great news for the sector, raw materials were scarce in some areas and there is evidence that pressure is increasing on supplier capacity.”

Dave Atkinson, UK head of manufacturing at Lloyds Bank Commercial Banking, added: “There will be fears that the latest PMI data suggests the manufacturing sector is showing the first signs of slowdown since last summer as the UK prepares to begin in earnest the process of leaving the European Union.

“Yet despite persistent headwinds, principally the uncertainty around future trade terms and pricier imports as a result of the weaker pound, some exporting manufacturers are taking the opportunity to review their international trade strategies and look beyond the EU, especially taking advantage in the short term of the devaluation of sterling making our exports more competitive.

“Firms are also becoming more skilled at dealing with unexpected geopolitical events. Businesses in the car manufacturing supply chain are waiting to see how the PSA-Opel deal will pan out with elections in several major European countries this year.

“Our latest report into the automotive sector suggests the industry – one of manufacturing’s best-performing sub-sectors and its biggest exporter – is taking a long term view on the future despite the uncertainty that they face into with firms forecasting a 15% rise in turnover over the next two years.”