Manufacturing sector remains subdued at end of second quarter

Credit: Andrey Armyagov

The performance of the UK manufacturing sector remained relatively subdued in June, especially when compared to the marked pace of growth seen before the turn of the year. according to Markit/CIPS Manufacturing PMI data released today.

The survey, which was conducted between 12-26 June, reveals that output growth moderated, to largely offset a mild acceleration in new order growth and improved job creation.

At 54.4 in June, the seasonally adjusted IHSMarkit/CIPS Purchasing Managers’ Index® (PMI®)was a tick above May’s downwardly revisedreading of 54.3 (originally 54.4) and stands almost four points below the 51-month high reached in November last year. The average reading over quarter two as a whole (54.2) is the weakest outcome since the final quarter of 2016

Sector data indicated that the upturn remained broad-based during June. Output and new orders rose across the consumer, intermediate and investment goods industries. However, the overall rate of expansion in manufacturing output slowed, as growth of new order inflows improved only mildly. Some companies noted that higher output had been partly sustained through inventory- building and clearing backlogs of work.

Although the rate of increase in new business edged up to a three-month high, it remained among the weakest registered over the past year- and-a-half. Rates of growth in new work received were broadly steady in both domestic and overseas markets. Where an increase in new export business was reported, this was partly linked to increased sales to mainland Europe, China, South America and Australia.

June saw a solid improvement in the rate of job creation, with staffing levels rising at the quickest pace for three months. Employment increased across the consumer, intermediate and investment goods sectors. However, the overall rate of jobs growth remained below those seen through much of 2017.

Input cost inflation accelerated to a four-month high in June, with companies reporting a wide range of inputs as up in price. Some noted that cost increases were being exacerbated by shortages of certain raw materials. Part of the rise in costs was passed on as higher selling prices.

Rob Dobson, Director at IHS Markit, which compiles the survey says “The UK manufacturing sector ended the secondquarter on a subdued footing. The turnaround in performance since the start the year has been remarkable, with impressive growth rates late last year turning into some of the weakest rates of expansion seen over the past two years in recent months.

“The slowdown in new order growth since earlier in the year has also left manufacturers increasingly reliant on backlogs of work and inventory building to maintain higher output. This is a position that cannot be sustained far beyond the immediate horizon. The trend in demand will need to stage a much firmer rebound if a further slowdown in output growth is to be avoided.

“How likely such a revival is remains in some doubt, with the June survey also seeing business optimism drop to a seven-month low amid rising concerns about possible trade tariffs, the exchange rate and Brexit uncertainty. Ongoing supply-chain disruptions, including raw material shortages, and signs of a renewed upswing in input price inflation may also jeopardise stronger manufacturing growth. With industry potentially stuck in the doldrums, the UK economy will need to look to other sectors if GDP growth is to match expectations in the latter half of the year.”