Manufacturing sector booms to three-year high

The latest Markit/CIPS Purchasing Managers’ Index (PMI) hit a three-year high of 57.3 in April, up from March’s low of 54.2 on the back of strong demand at home and abroad. All of the five sub-components that make up the manufacturing PMI enjoyed improvements – with the strongest growth coming from the investment goods sector. A reading above 50 shows growth while one below indicates it is contracting. This PMI figure was the 9th month in a row where the UK manufacturing sector has seen growth above 50. There has been a strong uplift in new export business off the back of the stronger global market conditions and the weaker Pound. These factors have both helped to increase demand from clients in Europe, North America, Africa and Brazil.

UK goods are now cheaper in foreign markets helping exporters, however, the historically weak sterling exchange rate has had an impact on cost pressures. This has raised the cost of imports, pushing higher the rate of purchase price inflation. Businesses have continued to pass on the higher costs to clients, leading to an uplift in average output charges.

There have been a number of key UK market contract wins which have improved the UK manufacturing output. Some manufacturers reported that some sellers were having difficulty meeting increasing demand for raw materials, especially as shortages developed for several items.

The latest PMI report also said ‘April also saw increased reports of companies purchasing and holding inputs in order to guard against future price increases. This was reflected in the trend in stocks of purchases, which rose at the fastest pace on record since the survey began in January 1992.’

Encouraging – the latest PMI hits a three-year high / Picture: Getty/iStock

Neil Lloyd, sales director at FBC Bowdler commented ‘I’m delighted to see that the manufacturing sector continues to deliver and with PMI now at a 3 year high, one can only wonder where’s next. Output, new and exports continue to gather pace, all of which I hope will result in continued business confidence throughout the 2nd quarter. The dark clouds of price pressures remain but its pleasing to see that input cost inflation has eased from the high in January.’

Denzil Rickerby, corporate fx dealer at Halo Financial said ‘PMI figures are a leading indicator, so this stellar PMI data signals a solid start to the second quarter and shows the resilience of the UK manufacturing industry. This bodes well for the UK economy, as the manufacturing sector makes up about a tenth of the UK economy. It is important to remember that this is only a survey, based on managers’ sentiment, so it will be vital to see if this index is maintained and translates to actual widespread improvements in the manufacturing, or whether, the Brexit effect will grip tighter – as we’ve seen after GDP dipped in the first quarter, reflecting higher inflation and squeezing consumer spending.’