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Weak exchange rate continues to drive up price pressures at UK manufacturers

Thursday, December 01, 2016
  • UK Manufacturing PMI at 53.4 in November (October: 54.2)
  • Weak exchange rate drives up input costs
  • Growth of production and new orders lose impetus, but remain above long-run trends
The upturn in the UK manufacturing sector extended into its fourth month running during November. Rates of expansion for output and new orders both remained solid, despite growth easing further from the highs reached in September. There were also signs that the weak exchange rate was having a continued sharp cost inflationary impact, leading to higher selling prices at the factory gate.  
The seasonally adjusted Markit/CIPS Purchasing Managers’ Index® (PMI®) posted 53.4 in November, down further from September’s 27-
The upturn in the UK manufacturing sector extended into its fourth month running during November. Rates of expansion for output and new orders both remained solid, despite growth easing further from the highs reached in September. There were also signs that the weak exchange rate was having a continued sharp cost inflationary impact, leading to higher selling prices at the factory gate.  The seasonally adjusted Markit/CIPS Purchasing Managers’ Index® (PMI®) posted 53.4 in November, down further from September’s 27-month high, but above its long-run average of 51.5. The PMI has remained above the neutral 50.0 mark for four successive months.
Underpinning the latest improvement in overall operating conditions were ongoing solid expansions of production and incoming new orders. Companies reported that domestic and export demand both remained positive growth spurs, as did new product launches, sales initiatives and efforts to clear backlogs of work. 
The effects of the weak sterling exchange rate continued to be felt by manufacturers during November. On the plus side, the boost to export competitiveness led to a further increase in new business from abroad. Companies reported improved demand from the USA, mainland Europe and the Middle East. 
The negative impact of the exchange rate was felt on the cost side. Average purchase prices rose at a pace close to October’s near six-year record and again at one of the fastest rates in the survey history. Of the manufacturers offering a reason for the increase in costs, 84% made some reference to the exchange rate (compared to around 90% making a similar link in October).
Part of the increase in input costs was, however, passed on to clients in the form of higher selling prices. Output charges rose for the seventh successive month, with the rate of increase close to October’s 64-month record. 
Strong inflation of input costs and factory gate prices was registered across the consumer, intermediate and investment goods sectors. The steepest increases in both price measures were registered at intermediate goods producers.
November saw UK manufacturing employment increase for the fourth straight month, albeit to a slightly lesser extent than in October. The sharpest jobs growth was registered by mid-sized firms. Modest increases in headcounts were also implemented at small and large sized companies.

David Noble, Group Chief Executive Officer at the Chartered Institute of Procurement & Supply:
“The sector continued to deliver a robust set of results in November, as growth in new orders and activity continued, albeit at slightly weaker rates than the previous month.

“The rise in activity was driven by both domestic and export orders, continuing to be buoyed up by a weaker pound, as UK manufacturing remained competitive to overseas business, and especially in the USA, Europe and the Middle East.

“Purchasing activity remained strong, with the fourth successive monthly rise, in spite of costs rising at a pace close to last month’s six-year high. Suppliers remained under pressure for the seventh month running, as delivery times grew longer, due to delayed distribution and a shortage of some raw materials such as steel, paper and timber products. Stock levels of completed work fell slightly, which went against the direction of last month’s moderate rise.

“Sentiment was positive, resulting in increased marketing activity, and a fourth successive monthly rise in employment – one of the fastest rates this year.

“Though the overall index showed a slightly diminished growth rate, both orders and overall expansion were above the long-term average of the survey’s 25 years. However, as the recent period of uncertainty recedes, fears over rising inflation and the ambiguity around the possible impact of Brexit negotiations, could restrain additional growth in the coming months. A period of sustained growth and stability would be good for the sector after the highs and lows of this year.”
 
For industry comments, please call:
CIPS
Trudy Salandiak
Tel: +44 1780 761576
Email: trudy.salandiak@cips.org