Manufacturing production expanded at its fastest pace since September 2016 and to one of the greatest extents during the past four years. Companies linked this to stronger inflows of new orders, reflecting solid domestic demand and steeper gains in new export business.
As we head towards the biennial MACH exhibition (p10), it is encouraging news, and capital goods sellers, such as those taking space at the exhibition, must be especially buoyed by the November PMI report’s citing of investment goods producers having seen the sharpest increase in new orders since August 1994. No surprise, as backlogs of work at UK factories increased for the first time in six months during November, meaning tighter capacity combined with rising demand.
Of course, the fall in sterling is a key component in this and it has a dark side, as JCB’s group purchase manager, Chris Bell, told the Confederation of British Metalforming (CBM) recently. The price of hot-rolled steel is up 57%, rubber now costs 83% more, whilst the price of copper has risen 20% since January 2016, he reported, adding: "It really has hit our costs and is a big challenge. The upside is that products exported from the UK are more competitive....[and] sterling’s devaluation has also made it easier for JCB to source supplies and components competitively in the UK." Although, just as the IHS/Market report identifies, Bell said that "the UK supplier base appears to be operating at capacity", citing non-availability of skilled labour as a factor.
Over many years, the UK has had regular bouts of currency depreciation that have boosted exports, but when the fall stops and the currency again climbs, as is predicted by strategists at Natwest Markets for the pound-euro rate next year, for example, then the quick competitive fix ends. A longer term solution is required and that means investment in productivity-boosting equipment and automation.
So, with UK capacity requiring expansion, this should not just prompt more of the same, even if that looks profitable today. No, stepping up to more productive technology should be the objective, so a visit to MACH 2018 at Birmingham’s NEC from 9-13 April this year is essential, no matter how full your schedule.
First published in Machinery, January 2018