UK manufacturing sees further marked growth in May

The UK manufacturing sector remained resilient in May according to the Chartered Institute for Procurement and Supply. At 56.7, the seasonally adjusted IHS Markit/CIPS Purchasing Managers’ Index (PMI) was only slightly below April’s three-year high of 57.3.

This sustained most of the growth momentum gained during the prior survey month and signalled an improvement in operating conditions for the 10 successive month, says the CIPS. Manufacturing production and new orders both expanded at above survey average rates.

Companies benefited most from the continued strength of the domestic market. There was also a solid increase in new export business. Overseas demand improved. The level of incoming new export orders rose for the thirteenth month in a row.

Key findings

• UK Manufacturing PMI at 56.7 in May
• Output and new order growth remain solid
• Rate of job creation at 35-month high

Intermediate goods sector leads

Sector data indicated that solid expansions of production and new orders were seen across the consumer, intermediate and investment goods categories. Output growth was led by intermediate goods. Growth moderated in the other two.

Ongoing expansion of the manufacturing sector had a positive impact on both business sentiment and job creation. Optimism regarding the outlook for production levels in one year’s time improved to a 20-month high.

Positivity reflected company expansions, efforts to improve market share and marketing strategies. Employment rose for the 10th consecutive month in May, with the rate of jobs growth the fastest since June 2014.

Looking good

• Employment up fastest since June 2014
• Intermediate goods sector leads output growth
• Manufacturers boost capacity

Rising business confidence

Alongside solid new order inflows and rising business confidence, manufacturers also raised capacity in response to increased backlogs of work. Outstanding business expanded at the fastest rate in over six years (albeit only a moderate increase overall).

Rates of inflation in input costs and output charges remained elevated, despite easing further from recent highs. Increased costs reflected the exchange rate and rising raw material prices. There were also signs of a sellers’ market developing for some inputs.

This is due to supply shortages and an associated lengthening of vendor lead times. A number of manufacturers maintained sufficient pricing power to pass on higher costs to clients. The increase in selling prices was still among the fastest seen in the survey history.

The weak exchange rate

• Enhances competitiveness
• Boosts exports
• But also boosts costs

“While not quite hitting the heights of April’s rebound in activity, the manufacturing sector didn’t disappoint with a sustained rise in purchasing activity, output and new orders,” saysSays Duncan Brock, Director of Customer Relationships at the CIPS.

Optimism is at a 20-month high, and storming ahead, he says. “The domestic market persisted as the driving force, but the weak pound’s continuing bounty meant levels of export orders also increased, for the 13th month.

The continuing levels of expansion have taken their toll on supply chains as purchasers reported lengthening delivery times and sourcing difficulties for a number of key materials. To meet these demands employment levels grew at their fastest levels since June 2014.

This is good news for job seekers, he adds, though the question mark over a continuing skills shortage in the UK will continue along the path to Brexit and the years ahead.

Manufacturing gained growth momentum

The strong numbers suggest the manufacturing sector has gained growth momentum in the second quarter after the sluggish start of the year, says Rob Dobson, senior economist at IHS Markit, which compiles the survey on behalf of the CIPS.

“The survey also provided positive signs that the upturn may be sustained, as growth of new orders remained solid, backlogs of work rose at the quickest pace in six years and business optimism improved to a 20-month high.

The underlying dynamics are proving to be a boon for the manufacturing labour market, he says. The sector should have sufficient momentum to see it through the uncertainty generated by the unexpected general election and into the start of Brexit negotiations.