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Manufacturing PMI at 30-month high as growth of output and new orders strengthen

Tuesday, January 03, 2017

 

UK Manufacturing PMI posts 56.1 in December
 Improved domestic and overseas demand
boosts output and new order growth
 Price pressures stay elevated but ease further
from recent highs
The UK manufacturing sector ended 2016 on a
positive note. Rates of growth for production and
new orders in December were among the best
seen over the past two-and-a-half years.
Companies benefited from stronger inflows of new
work from both domestic and overseas clients, the
latter aided by the boost to competitiveness from
the weak sterling exchange rate.
The seasonally adjusted Markit/CIPS Purchasing
Managers’ Index®
(PMI®
) rose to a 30-month high
of 56.1 in December, up from 53.6 in November
and well above its long-run average (51.5). The headline PMI has signalled expansion in each of
the past five months.
December saw output expanded to meet the
needs of stronger new work inflows. Growth of
production and new business was broad-based by
sector, with strong gains registered across the
consumer, intermediate and investment goods
industries. However, the increases seen at
consumer goods producers were relatively mild in
comparison to those seen in the other sectors.
New export business rose for the seventh
successive month in December. Furthermore, the
rate of growth was the second-highest since early-
2014, bettered only by that signalled in September
2016. Companies reported increased levels of new
work from the USA, Europe, China, Middle East,
India and other Asian markets.
Improved inflows of new business led to a slight
increase in backlogs of work in December, the first
rise since February 2014. This combination of higher output, new orders and work-in-hand
encouraged manufacturers to expand capacity.
Employment rose for the fifth consecutive month in
December, with the pace of jobs growth
accelerating to the fastest in 14 months. SMEs
saw the steepest expansion of staffing levels,
although large-scale producers registered a
modest increase too.
Price pressures remained elevated in December.
Rates of inflation for input costs and output
charges both remained among the fastest seen
during the survey history, albeit both slowing from
October’s highs.
The increase in purchase prices was the eighth in
as many months. Companies linked this to the
weak exchange rate driving up import costs.
Among firms offering a reason for higher input
prices, 75% made some reference to the
exchange rate (compared to 90% in October and
84% in November). There was also mention of the
rising cost of commodities like oil and steel.
Higher costs were passed on at the factory gate,
as selling prices rose for the eighth straight month
in December. Steep increases were seen across
the consumer, intermediate and investment goods
sectors. 
David Noble, Group Chief Executive Officer at
the Chartered Institute of Procurement & Supply:
“The sector continued to strengthen this month,
signalled by the headline index rising to a 30-month
high. Manufacturers enjoyed the stronger economic
environment and consequently raised production at
a robust pace, while finding room to increase
purchasing activity at the strongest rate for twoand-a-half
years.
The stimulus for growth came from new order wins
in both domestic and overseas markets. The rates
of growth remained marked, while new export
orders were boosted by the sustained weakness of
the pound. Some respondents commented on an
increase in orders from India, China, the US and
EU.
This growth in new order inflows was the strongest
in two-and-a-half years. In response, employment
levels gathered pace at the fastest rate for 14
months, where SMEs saw the biggest rises in
staffing.
This fervent activity placed suppliers under greater
pressure. Supplier delivery times lengthened for the
eighth month in a row, with manufacturers reporting
raw material shortages as placing strains on vendor
performance. Backlogs of work also increased for
the first time since February 2014.
The impact of rising input costs continued to be felt,
as the rate of cost inflation stood at one of the
highest in the survey’s 25-year history. However,
this did not deter manufacturers from leveraging their buying capability and increasing their input
orders - the fifth month in succession. In fact, the
rate of stock building reached its fastest for six
years, partly to counteract future expected price
increases in raw materials and any possible
shortages in the year ahead.
This fizz in new orders signals good news for UK
manufacturers which has previously been hit by
uncertainties following the EU referendum, and the
sector looks set to reach a more robust growth path
at the start of 2017.”
For industry comments, please call:
CIPS
Trudy Salandiak
Tel: +44 1780 761576
Email: trudy.salandiak@cips.org

Markit/CIPS UK Manufacturing PMI®

- UK Manufacturing PMI posts 56.1 in December

- Improved domestic and overseas demand boosts output and new order growth

- Price pressures stay elevated but ease further from recent highs

The UK manufacturing sector ended 2016 on a positive note. Rates of growth for production and new orders in December were among the best seen over the past two-and-a-half years. Companies benefited from stronger inflows of new work from both domestic and overseas clients, the latter aided by the boost to competitiveness from the weak sterling exchange rate.

The seasonally adjusted Markit/CIPS Purchasing Managers’ Index® (PMI®) rose to a 30-month high of 56.1 in December, up from 53.6 in November and well above its long-run average (51.5). The headline PMI has signalled expansion in each of the past five months.

December saw output expanded to meet the needs of stronger new work inflows. Growth of production and new business was broad-based by sector, with strong gains registered across the consumer, intermediate and investment goods industries. However, the increases seen at consumer goods producers were relatively mild in comparison to those seen in the other sectors.

New export business rose for the seventh successive month in December. Furthermore, the rate of growth was the second-highest since early-2014, bettered only by that signalled in September 2016. Companies reported increased levels of new work from the USA, Europe, China, Middle East, India and other Asian markets.

Improved inflows of new business led to a slight increase in backlogs of work in December, the first rise since February 2014. This combination of higher output, new orders and work-in-hand encouraged manufacturers to expand capacity.

Employment rose for the fifth consecutive month in December, with the pace of jobs growth accelerating to the fastest in 14 months. SMEs saw the steepest expansion of staffing levels, although large-scale producers registered a modest increase too.

Price pressures remained elevated in December. Rates of inflation for input costs and output charges both remained among the fastest seen during the survey history, albeit both slowing from October’s highs.

The increase in purchase prices was the eighth in as many months. Companies linked this to the weak exchange rate driving up import costs. Among firms offering a reason for higher input prices, 75% made some reference to the exchange rate (compared to 90% in October and 84% in November). There was also mention of the rising cost of commodities like oil and steel.

Higher costs were passed on at the factory gate, as selling prices rose for the eighth straight month in December. Steep increases were seen across the consumer, intermediate and investment goods sectors. 

David Noble, Group Chief Executive Officer at the Chartered Institute of Procurement & Supply:

“The sector continued to strengthen this month, signalled by the headline index rising to a 30-month high. Manufacturers enjoyed the stronger economic environment and consequently raised production at a robust pace, while finding room to increase purchasing activity at the strongest rate for two and-a-half years.

"The stimulus for growth came from new order wins in both domestic and overseas markets. The rates of growth remained marked, while new export orders were boosted by the sustained weakness of the pound. Some respondents commented on an increase in orders from India, China, the US and EU.

"This growth in new order inflows was the strongest in two-and-a-half years. In response, employment levels gathered pace at the fastest rate for 14 months, where SMEs saw the biggest rises in staffing.

"This fervent activity placed suppliers under greater pressure. Supplier delivery times lengthened for the eighth month in a row, with manufacturers reporting raw material shortages as placing strains on vendor performance. Backlogs of work also increased for the first time since February 2014.

"The impact of rising input costs continued to be felt, as the rate of cost inflation stood at one of the highest in the survey’s 25-year history. However, this did not deter manufacturers from leveraging their buying capability and increasing their input orders - the fifth month in succession. In fact, the rate of stock building reached its fastest for six years, partly to counteract future expected price increases in raw materials and any possible shortages in the year ahead.

"This fizz in new orders signals good news for UK manufacturers which has previously been hit by uncertainties following the EU referendum, and the sector looks set to reach a more robust growth path at the start of 2017.”

For industry comments, please call:

CIPS

Trudy Salandiak Tel: +44 1780 761576; Email: trudy.salandiak@cips.org