UK manufacturing growth slows at beginning of 2018

2 min read

The start of 2018 saw a further easing in the rate of expansion of the UK manufacturing sector, according to the latest Markit/CIPS Purchasing Managers’ Index (PMI).

The UK manufacturing PMI sat at 55.3 in January – down further from November’s 51-month high and at its lowest level since June last year, but above the long-run average of 51.7.

Markit says that manufacturing output continued to rise at a solid pace, although the rate of expansion eased to a six-month low. Higher production reflected rising new order intakes, which increased through robust demand from both domestic and export clients.

Sector data signalled solid increases in output and new orders across the consumer, intermediate and investment goods sectors. Rates of expansion were higher in the latter compared to those at consumer and intermediate goods producers.

Foreign demand also improved at one of the quickest rates over the past four years, with increased sales to clients in North America, China, mainland Europe, the Middle East and Japan.

However, one consequence of the upturn was an upsurge in price pressures. On the cost side, increased demand for inputs led to improved supplier pricing power and shortages of raw materials, resulting in a marked acceleration in input cost inflation.

Purchase prices also rose at the fastest rate in 11 months and to one of the greatest extents in the survey history. Companies reported a wide range of raw materials and commodities as up in price, including chemicals, food products, metals, oil, paper and plastics. Part of the increase in costs was passed on to clients in the form of higher selling prices.

IHS Markit director Rob Dobson says: “The UK manufacturing sector reported an unwelcome combination of slower growth and rising prices at the start of 2018. Encouragingly, despite the slowdown, the latest survey is consistent with production rising at a solid quarterly rate of around 0.6% in January, with jobs also being added at a faster pace. However, output growth has slowed sharply since last November’s high, and the more forward-looking new orders index has slipped to a seven-month low. The trend in demand will need to strengthen in the near-term to prevent further growth momentum being lost in the coming months.

“The biggest advance during the latest survey came on the prices front, with the recent easing in inflationary pressure seeing a sudden sharp reversal. Cost inflation surged to an 11-month high and to one of its highest levels in the series history, as oil prices surged higher and demand for many inputs outpaced supply. The pass-through of these costs took selling price inflation to its highest in nine months. These price trends will be watched closely to see if the upsurge is simply a one-off spike or something more embedded.”