April saw a marked slowdown in the rate of expansion of the UK manufacturing sector. Output rose at the weakest pace since November last year,
while the base of the upturn narrowed and became further skewed towards the consumer goods sector. The seasonally adjusted Markit/CIPS Purchasing
Manager’s Index® (PMI®) posted 51.9 in April, a seven-month low and below the revised March reading of 54.0 (originally 54.4). The PMI has
nonetheless remained above the neutral 50.0 mark, signalling expansion, for 25 consecutive months. The slowdown in the rate of increase of output occurred in tandem with weaker growth of incoming new business, in turn led by a decrease in the
volume of new work received from abroad.
Companies reported that the domestic market continued to exhibit a degree of strength, leading to growth of total new orders. However, the sterlingeuro exchange rate was also hitting competitiveness in our largest trading partner (the eurozone). Growth of output and new orders was largely centred on the consumer goods sector during April, with rates of expansion in this market group remaining substantial. In contrast, the intermediate goods sector saw output and new orders fall back into contraction, while investment goods firms posted a decline in new work and slower production growth.
Manufacturing employment increased for the twenty-fourth successive month in April, with modest job creation signalled in both the consumer and investment goods sectors. Increased workloads were the primary factor encouraging firms to take on additional staff. Price pressures remained on the downside in April, with both input costs and output charges falling during the latest survey month. Meanwhile, shortages of certain raw materials led to longer delivery times from suppliers. Average input prices declined for the eighth successive month during April. Where a reduction was reported, this was linked to the euro-sterling exchange rate and higher costs for commodities, oil by-products and some food raw materials.
Conversely, there also were some manufacturers reporting an increase in prices paid for dollardenominated inputs, mainly due to the sterling-US
dollar exchange rate. April saw output prices decrease for the fourth straight month, with the rate of deflation the steepest since September 2009.
Comment:
Rob Dobson, Senior Economist at survey compilers Markit:
“Coming on the back of weaker-than-expected GDP numbers on Tuesday and only six days before the General Election, today’s UK PMI delivered less
than positive news on the health of the manufacturing sector. Rates of expansion in production and order books both slowed sharply in April, meaning manufacturing is again unlikely to provide much of a boost to broader economic growth. This keeps the emphasis for maintaining the recovery highly reliant on the service sector. “Growth remains largely consumer-led, with the strong performance of the consumer goods sector
in stark contrast with other sectors. Companies that supply manufactured inputs to other firms reported a return to contraction, suggesting other firms are planning to cut production. “The investment and export pictures are also subdued. A decline in capital goods new orders is a weak bellwether for business investment spending, while a slowing global economy and strong sterlingeuro exchange rate are hurting the competitiveness of exporters. “A key challenge for the next government is to revive manufacturing and help it at least regain its pre-crisis peak, as any signs of rebalancing the economy towards manufacturing and exports remain frustratingly elusive.“
David Noble, Group Chief Executive Officer at the Chartered Institute of Procurement & Supply: “A sudden slowdown in activity growth in
manufacturing may surprise some economic commentators hoping for a more linear recovery at higher rates of expansion, but the index remained
in positive territory this month. “The domestic market showed solid leadership by providing the source of many of the new orders albeit at a more subdued level, with export orders still dragging their feet. The consumer goods sector achieved faster growth of activity than the other
sectors, with the investment and intermediate goods sectors relative laggards.” “Businesses were keen to keep stock and inventory levels lower and are taking advantage of lower commodity costs to re-invest in other areas of the business such as employment which showed another strong rise.
“Shortages in a number of raw materials added pressure to supply chains besieged by recent rises in new orders, backlogs and ongoing activity.
Delivery times from suppliers increased which may add pressure in the coming months at a time when the sector still hasn’t made as much headway as the other sectors to reach pre-recession levels of output.”
About Markit
Markit is a leading global diversified provider of financial information services. We provide products that enhance transparency, reduce risk
and improve operational efficiency. Our customers include banks, hedge funds, asset managers, central banks, regulators, auditors, fund
administrators and insurance companies. Founded in 2003, we employ over 3,500 people in 10 countries. Markit shares are listed on
Nasdaq under the symbol MRKT. For more information, please see www.markit.com.
About PMI
Purchasing Managers’ Index® (PMI®) surveys are now available for 32 countries and also for key regions including the Eurozone. They are
the most closely-watched business surveys in the world, favoured by central banks, financial markets and business decision makers for their
ability to provide up-to-date, accurate and often unique monthly indicators of economic trends. To learn more go to
www.markit.com/economics.
About CIPS
The Chartered Institute of Procurement & Supply (CIPS) is the world’s largest procurement and supply professional organisation. It is the
worldwide centre of excellence on purchasing and supply management issues. CIPS has a global community of 110,000 in 150 countries,
including senior business people, high-ranking civil servants and leading academics. The activities of procurement and supply chain professionals have a major impact on the profitability and efficiency of all types of organisation and CIPS offers corporate solutions
packages to improve business profitability. www.cips.org
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